Banks’ emergency borrowing eases
WASHINGTON - Banks borrowed less from the Federal Reserve’s emergency lending facility over the past week and cut back on other programs designed to ease the financial crisis, encouraging signs that some credit stresses are easing.
The Fed yesterday said commercial banks averaged $35.9 billion in daily borrowing over the week ended Wednesday. That was down from $39.1 billion in the week ended June 24.
Investment firms didn’t draw any loans for the seventh straight week. The last time they drew any money - just $482 million - was in the week ended May 13.
The identities of the financial institutions are not released. They pay just 0.50 percent in interest for the emergency loans.
The weekly lending report showed the Fed’s net holdings of “commercial paper’’ averaged $119 billion over the week ended Wednesday, a decrease of $8.4 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.
Some analysts worried that a recent run-up in rates on mortgages and Treasury securities - if prolonged - could choke off prospects for an economic recovery. However, the Fed doesn’t appear to buy that notion.
The central bank last week opted not to expand purchases beyond the announced limits of $300 billion in government debt and $1.25 trillion in mortgage securities.
Squeezed banks have been borrowing from the Fed because they couldn’t get money elsewhere. Investors cut them off and shifted their money into safer Treasury securities. Financial institutions are hoarding much of their cash, rather than lending it to each other or customers.
