Banks edge up borrowing from Fed emergency program

WASHINGTON -- Banks nudged up borrowing from the Federal Reserve's emergency lending facility over the past week, but cut back on other programs designed to ease the financial crisis. The overall picture, though, still suggests some credit stresses are easing.

The Fed, in a report issued Thursday, said commercial banks averaged $33.8 billion in daily borrowing over the week that ended Wednesday. That was up slightly from $33.7 billion in the week ended July 22.

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

The report also showed that some of the assets the Fed took on last year when it bailed out Bear Stearns and insurer American International Group have dipped in value.

The Fed's holdings of assets from Bear Stearns were valued at $25.9 billion as of the end of June. That's down from $26.1 billion as of the end of March.

In addition, the Fed's holdings of residential mortgage-backed securities from AIG were valued at $15.1 billion, down from $15.8 billion. However, the Fed's holdings of collateralized debt obligations, which are complex financial instruments that combine various slices of debt, were valued at $21.1 billion, up from $18.8 billion.

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Critics worry the Fed's actions have put billions of taxpayers' dollars at risk.

Meanwhile, the weekly lending report also showed the Fed's net holdings of "commercial paper" averaged $94.4 billion, a decrease of $16 billion from the previous week. That's an encouraging sign that investors appetite for such help from the Fed has lessened.

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 the Fed boosted its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. They averaged $544.5 billion over the past week, up $7.2 billion from the previous week. The goal of the program, which started on Jan. 5, is to drive down mortgage rates and help the housing market.