Banks, investment firms borrow less from Fed in past week

WASHINGTON -- Commercial banks and investment firms reduced their borrowing over the past week from the Federal Reserve's emergency loan program, a hopeful sign that some credit stresses are easing.

The Fed on Thursday said commercial banks averaged $43.1 billion in daily borrowing over the week that ended Wednesday. That was down from $48.5 billion in average daily borrowing logged over the week ended April 15.

Investment firms drew $9.2 billion over the past week from the Fed program, down from an average of $12.9 billion the previous week.

The identities of financial institutions are not released, but they now pay just 0.50% in interest for the emergency loans.

In another promising sign, the Fed's net holdings of "commercial paper" averaged $240.9 billion over the week ending Wednesday, a decrease of $3.7 billion from the previous week.

Commercial paper is the crucial short-term debt that companies use to pay everyday expenses, which the Fed began buying under the first-of-its-kind program on Oct. 27, a time of intensified credit problems. 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 averaged $362.6 billion over the past week, up $75.4 billion from the previous 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 program late last year.

Rates on 30-year mortgages dipped to 4.80% this week, from 4.82% last week, Freddie Mac reported Thursday. The all-time low of 4.78% was recorded in early April on records dating to 1971.

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, which now matches the longest since World War II.