Banks borrow record amount from Fed over the past week

WASHINGTON -- Banks borrowed in record amounts from the Federal Reserve's emergency lending facility over the past week, while investment banks drew loans at a brisk — though slightly lower — pace, fresh proof of the credit problems gripping the country.

The Fed's report released Thursday said commercial banks averaged a record $75 billion in daily borrowing over the past week. That surpassed the old record — a daily average of $44.5 billion — logged in the previous week. On Wednesday alone, $98 billion was drawn, an all-time high.

For the week ending Wednesday, investment firms drew $134 billion. That was down from a record $147.7 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch.

The Fed report also showed that over the last week $145.9 billion worth of loans were made to money market mutual funds — via banks — to help the funds, which have been under pressure as skittish investors demand withdrawals.

Squeezed banks and investment firms are borrowing from the Fed because they can't get money elsewhere. Skittish investors have cut them off, moving their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lend it to each other or customers.

The report also showed that the Fed has loaned $70.3 billion to insurance giant American International Group. In mid-September, the Fed said it would provide the troubled company a two-year, $85 billion loan. On Wednesday the central bank said it would loan the company an additional $37.8 billion.

The report comes as Washington policymakers battle the worst financial crisis since the stock market crash of 1929.

Investment houses in March were given similar, emergency-loan privileges as commercial banks after a run on Bear Stearns pushed what was the nation's fifth-largest investment bank to the brink of bankruptcy.