Wall St. borrows billions from Fed

WASHINGTON - Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported yesterday.

The lending is part of a major effort by the Fed to help a financial system in danger of freezing.

Those large firms averaged $13.4 billion in daily borrowing over the past week from the new lending facility. The report does not identify the borrowers.

The Fed, in a bold move Sunday, agreed for the first time to let big investment houses get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, got under way Monday and will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.

Goldman Sachs, Lehman Brothers, and Morgan Stanley said Wednesday they had begun to test the new lending mechanism.

On Wednesday alone, lending reached $28.8 billion, according to the Fed report.

The Fed created a way for financially strapped investment firms to have regular access to short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans.

Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

Separately, the Fed said it will make $75 billion of Treasury securities available to big investment firms next week. Investment houses can bid on a slice of the securities at a Fed auction Thursday; a second is set for April 3.

The Fed will allow investment firms to borrow up to $200 billion in safe Treasury securities by using some of their more risky investments as collateral.

In doing so, the Fed is hoping to take pressure off financial companies and make them more inclined to make loans.