Banks borrow record amount from Fed

WASHINGTON -- The Federal Reserve reports that banks borrowed in record amounts from its emergency lending facility over the past week, while investment banks drew loans at a brisk — though slightly lower — pace, further evidence of the credit stresses hobbling the country.

The Fed's report, released Thursday, shows commercial banks averaged a record $99.7 billion in daily borrowing over the past week. The old record — a daily average of $75 billion — was from the prior week. On Wednesday alone, $101.9 billion was drawn, an all-time high.

For the week ending Wednesday, investment firms drew $131.1 billion. That was down a bit from $134 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 $129.6 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. 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 the Fed has loaned $82.9 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. Last week 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.

So far this year, 15 banks have failed, compared with three last year.

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.