Banks borrow less from the Fed over past week

AP News
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Posted: Dec 17, 2009 5:20 PM

Banks borrowed slightly less from the Federal Reserve's emergency lending program over the past week.

The Fed said Thursday that commercial banks averaged $19.09 billion in daily borrowing for the week that ended Wednesday. That was down $257 million from the previous week.

Banks' use of the program has been declining for the last several months, reflecting greater stability in the financial system. Banks borrow from the Fed's "discount window" when they are having trouble getting loans in the private market.

The Fed does not release the identities of the banks that borrow from its discount window. They pay just 0.50 percent interest for the emergency, overnight loans.

A separate program intended to boost the availability of short-term financing crucial for business operations like payroll and supplies also saw a reduction in use in the past week. Loss of such so-called "commercial paper" financing was a central part of last year's financial crisis.

Under the program, the Fed's holdings of commercial paper averaged $14.03 billion for the week ending on Wednesday, down by $568 million from the previous week. At its peak in late January, the Fed held almost $350 billion worth of commercial paper.

Banks' use of short-term loans from the Fed's "term auction credit" facility was unchanged at an average of $85.83 billion, the same as last week. The limited borrowing shows banks are having an easier time getting short-term loans in private markets.

Thursday's report showed an increase in the central bank's purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Those holdings averaged $873.98 billion for the week ending on Wednesday, up $19.77 billion from the previous week.

In a statement at the conclusion of their final meeting of the year on Wednesday, Fed policymakers said they still had the goal of purchasing $1.25 trillion of these securities by the end of March. The goal of the program is to drive down mortgage rates and provide support to the country's battered mortgage market.

Rates on 30-year mortgages edged up for the second consecutive week but still remain at historically low levels below 5 percent, according to the weekly survey by Freddie Mac. The mortgage company reported that the national average for 30-year fixed mortgages was 4.94 percent this week, up from 4.81 percent last week.

The Fed announced on Wednesday that it was keeping a key short-term interest rate at a record low near 0 percent, where it has been for the past year, as it continues to work to pull the economy out of the worst recession since the 1930s.

Fed officials said they expected to bring most of the special credit facilities they developed to respond to the crisis to a conclusion by Feb. 1.