Banks, investment firms trim borrowing from Fed in past week
WASHINGTON -- Commercial banks and investment firms trimmed borrowing over the past week from the Federal Reserve's emergency lending program, a modest sign of some easing in credit strains.
The Fed reported Thursday that commercial banks averaged $64.4 billion in daily borrowing over the week ending Wednesday. That was down from nearly $66 billion in average daily borrowing logged over the week that ended Feb. 18.
Investment firms drew $25.6 billion over the past week from the Fed program. That was down slightly from an average of $26 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 $246.2 billion over the week ending Wednesday, a decrease of $4.1 billion from the previous week. It was the fifth straight week that such holdings declined, a positive development that suggests companies are relying less on the Fed for short-term financing needs, economists said.
The first-of-its-kind program started on Oct. 27, a time of intensified credit problems. The Fed then began buying commercial paper — the crucial short-term debt that companies use to pay everyday expenses. The central bank 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 $68.7 billion as of Wednesday, up from $65.3 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.
