Banks cut borrowing from Fed emergency lending program
WASHINGTON -- Banks cut borrowing from the Federal Reserve's emergency lending program, while investment firms took a pass for the fourth straight week, a sign some credit problems are easing.
The Fed on Thursday said commercial banks averaged $36.9 billion in daily borrowing over the week that ended Wednesday. That was down from $41.9 billion in the week ending June 3.
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 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 $140.8 billion over the week that ended Wednesday, a decrease of $4.3 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 $427.4 billion over the past week, down $196 million 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 had dropped since the Fed announced the creation of the program late last year, they have been rising in recent weeks.
Rates on 30-year home loans jumped to 5.59% this week, the highest in seven months, Freddie Mac reported Thursday.
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.
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