Banks, investment firms borrow less from Fed in past week
WASHINGTON -- Commercial banks and investment firms reduced borrowing over the past week from the Federal Reserve's emergency lending program, although demand for other types of credit relief was high.
The Fed on Thursday said commercial banks averaged $61.6 billion in daily borrowing over the week ending Wednesday. That was down from $69.1 billion in average daily borrowing logged over the week that ended Jan. 14.
Investment firms drew $32.7 billion over the past week. That compared with an average of nearly $33.7 billion the previous week. This category includes any loans that were made to the U.S.- and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Bank of America.'s Merrill Lynch.
The Fed's net holdings of "commercial paper" averaged $349.9 billion over the week ending Wednesday, an increase of $15 billion from the previous week. Under the first-of-its-kind program started Oct. 27, the Fed is buying commercial paper — the crucial short-term debt that companies use to pay everyday expenses. The Fed has said about $1.3 trillion worth of commercial paper would qualify.
The Fed also said its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae were valued at nearly $6 billion as of Wednesday, up from $5.6 billion last week. The goal of the program, which started on Jan. 5, is to help the crippled mortgage-finance and housing markets. Mortgage rates have dropped since the Fed announced the creation of the $500 billion program late last year.
Squeezed banks and investment firms are borrowing from the Fed because they can't get money elsewhere. Investors have cut them off and shifted their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lending it to each other or customers. The lockup in lending has contributed to the recession, now in its second year.
Investment houses last 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 and into a takeover by JPMorgan Chase.
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