Banks borrow more from Fed in past week, investment firms pass

WASHINGTON -- Banks boosted borrowing from the Federal Reserve's emergency lending program over the past week, while investment firms took a pass for the third straight week.

The Fed on Thursday said commercial banks averaged $41.9 billion in daily borrowing over the week that ended Wednesday. That was up from $38.2 billion in the week ending May 27.

Investment firms didn't draw any loans over the past week from the Fed program. The last time they drew any money — just $482 million — was in the in the week that ended May 13. The following week, the firms didn't draw any loans, the first time that had happened since early September.

The identities of the financial institutions are not released. They pay just 0.50% in interest for the emergency loans.

In another encouraging sign, the report showed the Fed's net holdings of "commercial paper" averaged $145.1 billion over the week that ended Wednesday, a decrease of $9.6 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 report also showed that the Fed trimmed its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. They averaged $427.6 billion over the past week, down $3.3 billion from the previous week. The goal of the program, which started on Jan. 5, is to drive down mortgage rates, helping the ailing housing market.

Although mortgage rates have dropped since the Fed announced the creation of the program late last year, rates have been rising in recent weeks. Rates on 30-year home loans jumped to 5.29% this week, from an average of 4.91% last week, Freddie Mac reported Thursday. It was the highest weekly average in nearly six months.

Some economists believe a recent rise in rates on mortgages and Treasury securities could prompt the Fed to step up its purchases of government debt. The Fed in March announced it would buy up to $300 billion worth of Treasury securities over the next six months with the hope of pulling down rates on mortgages and other consumer debt.