Banks cut emergency borrowing from Federal Reserve
|
|
| Photo shows the Federal Reserve Building on Constitution Avenue in Washington. (AP Photo/J. Scott Applewhite) |
| Buy Sauk Valley Media Photos » |
WASHINGTON (AP) — Banks trimmed their borrowing from the Federal Reserve's emergency lending program over the past week, evidence that some credit problems are easing as the economy recovers.
The Fed said Thursday that commercial banks averaged $22.6 billion in daily borrowing over the week that ended Wednesday. That's down from $23.8 billion in the week ended Oct. 21, and much lower than $112 billion a year ago at the height of the financial crisis.
The identities of the financial institutions are not released. They pay just 0.50 percent in interest for the emergency, overnight loans.
The central bank's weekly balance sheet report also showed that the assets it took on last year when it bailed out investment bank Bear Stearns and insurer American International Group Inc. rose in value in the July-September quarter.
The Fed said its holdings of assets from Bear Stearns were valued at $26.3 billion as of Sept. 30, an increase of about $400 million from the previous quarter. Still, that's below the $29 billion in loans the Fed provided to help finance JPMorgan Chase&Co.'s purchase of Bear.
The central bank's holdings of residential mortgage-backed securities from AIG were valued at $16 billion, up from $15.1 billion at the end of June. And its holdings of AIG collateralized debt obligations, complex financial instruments that combine various slices of debt, rose in value to $23.2 billion from $21.1 billion.
The Fed agreed to purchase the securities as part of the government's combined $182.5 billion bailout of AIG.
Banks also trimmed their use of other credit programs established to ease the financial crisis, including one aimed at boosting the availability of short-term financing crucial for paying salaries and supplies.
The Fed's net holdings of "commercial paper" averaged $32.3 billion, a drop of $7.6 billion from the previous week. At its peak in late January, the Fed held almost $350 billion of commercial paper.
And banks' use of short-term loans drawn from the Fed's "term auction credit" facility averaged $139.2 billion, down more than $16 billion from the previous week.
The reduced borrowing shows banks are having a slightly easier time getting short-term loans in private markets.
But the improvement hasn't necessarily translated into easier terms for bank customers — both businesses and individuals. For them, the flow of credit is not back to normal. That's one reason Fed Chairman Ben Bernanke and other economists believe the budding economy recovery will be lethargic.
The report Thursday also showed that the central bank boosted its purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Those purchases were valued at $766 billion over the past week, an increase of $9.5 billion from the previous week.
The Fed at its meeting last month decided to slow down its purchases of these securities. The central bank will wrap up its $1.25 trillion program by the end of March, rather than by the end of this year. The goal of the program is to drive down mortgage rates and prop up the housing market.
The Fed's program has been credited with helping to force down mortgage rates.
Rates on 30-year home loans averaged 5.03 percent this week, down from 6.46 percent last year, according to mortgage company Freddie Mac. The rate was 5 percent last week.
