Banks borrow more, investment firms less over past week from Fed’s emergency lending program

Banks borrow more, investment firms less from Fed

WASHINGTON — Commercial banks borrowed more over the past week from the Federal Reserve’s emergency lending program, while investment firms borrowed less.

The Fed reported Thursday that commercial banks averaged $44.8 billion in daily borrowing over the past week that ended Wednesday. That was up from $43.1 billion in the week that ended April 22.

Investment firms drew $5.5 billion over the past week from the Fed program, down from an average of $9.2 billion the previous week.

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

The report also showed that the Fed’s net holdings of “commercial paper” averaged $222.9 billion over the week ending Wednesday, a decrease of nearly $18 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 Fed also said its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae averaged $367.7 billion over the past week, up $5.1 billion from the previous week. The goal of the program, which started on Jan. 5, is to help the crippled mortgage-finance and housing markets. Mortgage rates have dropped since the Fed announced the creation of the program late last year.

Rates on 30-year mortgages tied a record low this week.

Average rates on 30-year, fixed-rate mortgages, the most popular loan among home buyers, slid to 4.78 percent, from 4.80 percent last week, Freddie Mac said. Last year at this time, the average rate on a 30-year mortgage was 6.06 percent. The all-time low of 4.78 percent was first recorded the week of April 2. Freddie Mac’s annual survey dates to 1971.

Squeezed banks and investment firms are borrowing from the Fed because they can’t get money elsewhere. Investors have cut them off and shifted their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lending it to each other or customers. The lockup in lending has contributed to the recession, which now matches the longest since World War II.

Investment houses in March 2008 were given similar emergency-loan privileges as commercial banks after a run on Bear Stearns pushed what was the nation’s fifth-largest investment bank to the brink of bankruptcy and into a takeover by JPMorgan Chase & Co.

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

The central bank’s balance sheet now stands at $2.087 trillion, down from $2.169 trillion last week. However, the balance sheet has more that doubled since September, reflecting the Fed’s many unconventional efforts — various programs to lend or buy debt — to mend the financial system and jolt the economy out of recession.

The report also said that credit provided to insurer American International Group Inc. averaged $44.5 billion for the week ending Wednesday, down slightly from the previous week.