Investment Firms Tap Fed for Billions

WASHINGTON (AP) -- Big Wall Street investment companies are stepping up their borrowing a bit from the Federal Reserve's unprecedented emergency lending program.

The Federal Reserve reports Thursday that those firms averaged $38.1 billion in daily borrowing over the past week from the new lending program. That compared with $32.9 billion in the previous week and $13.4 billion in the first week the lending facility opened.

The program, which began on March 17, is part of the Fed's effort to aid the financial system.

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

Fed Chairman Ben Bernanke and his colleagues opened the facility as it raced to deal with the sudden crash of the venerable Wall Street firm Bear Stearns, which was on the brink of bankruptcy. Fearful that other investment firms could be in jeopardy given the intense fear that gripped the markets at that time, the Fed moved to give investment firms a place to go for overnight cash loans.

The lending facility is seen as similar to the Fed's "discount window" for commercial banks, where the Fed acts as a lender of last resort. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.

Banks also stepped up their borrowing from the Fed's discount window. Banks averaged $7 billion in daily borrowing for the week ending April 2. That compared with $550 million in average daily borrowing for the previous week.

The identities of commercial banks and investment houses borrowing from the Fed's emergency lending facilities are not released.

Also Thursday, the Fed, in the second operation of its kind, auctioned another $25 billion of much-in-demand Treasury securities to investment firms. Bidders paid an interest rate of 0.160 percent. The Fed received bids of $46.9 billion worth of the securities. Bidders, who are not identified, can put up risky home loan packages as collateral.

That program is intended to help financial institutions and the troubled mortgage market. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions that started last Thursday.

The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities have driven up mortgage rates, aggravating the housing crisis.


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