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August 30th, 2009, 01:29 PM
Banks trim borrowing from emergency Fed program
By CHRISTOPHER S. RUGABER, AP Economics Writer
Banks borrowed less over the past week from a Federal Reserve emergency lending program designed to combat the financial crisis, a sign the institutions are having an easier time getting credit from private markets.
The Federal Reserve said Thursday commercial banks averaged $30.7 billion in daily borrowing over the week that ended Wednesday. That's down from $33.9 billion in the week ended Aug. 12.
The identities of the financial institutions are not released. They pay just 0.50 percent in interest for the emergency loans.
The report showed the Fed did increase its financing activities in other areas. The central bank boosted its lending under a program designed to provide more credit to consumers and small businesses to $36.3 billion, from $29.8 billion the previous week.
Investors borrow the money to buy newly issued securities backed by, among other things, auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration. That provides a source of financing for those loans.
The program, known as the Term Asset-Backed Securities Loan Facility, or TALF, started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit problems.
The central bank also ramped up its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Its holdings averaged $607 billion, up from $542.9 billion the previous week. The goal of the program, which began Jan. 5, is to drive down mortgage rates.
The Fed has pledged to purchase up to $1.25 trillion of the securities, along with $200 billion of debt issued by Fannie and Freddie.
Mortgage rates fell this week. Rates on 30-year home loans averaged 5.12 percent, the lowest since May and down from 5.29 percent last week, Freddie Mac reported Thursday. The 30-year fixed-rate mortgage averaged 6.47 percent a year ago.
The weekly lending report also showed the Fed's net holdings of "commercial paper" averaged $56.5 billion, a decrease of $3.5 billion from the previous week. That's an encouraging sign that investors' appetite for such help from the Fed has eased.
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, as the financial crisis intensified. At its peak in late January, the Fed held almost $350 billion of commercial paper.
Critics worry the Fed's actions put billions of taxpayers' dollars at risk. Some of the assets the Fed took on last year when it bailed out Bear Stearns and insurer American International Group Inc. have dipped in value.
The report also said that credit provided to AIG averaged $39.2 billion for the week ending Wednesday, down from $41.2 billion last week.
The central bank's balance sheet stands at about $2 trillion, up from nearly $1.99 trillion last week. The balance sheet has more than doubled since September, reflecting the Fed's many unconventional efforts various programs to lend or buy debt to mend the financial system and lift the country out of recession.
Link
http://www.housingzone.com/probuilder/articleXml/LN1028426938.html
By CHRISTOPHER S. RUGABER, AP Economics Writer
Banks borrowed less over the past week from a Federal Reserve emergency lending program designed to combat the financial crisis, a sign the institutions are having an easier time getting credit from private markets.
The Federal Reserve said Thursday commercial banks averaged $30.7 billion in daily borrowing over the week that ended Wednesday. That's down from $33.9 billion in the week ended Aug. 12.
The identities of the financial institutions are not released. They pay just 0.50 percent in interest for the emergency loans.
The report showed the Fed did increase its financing activities in other areas. The central bank boosted its lending under a program designed to provide more credit to consumers and small businesses to $36.3 billion, from $29.8 billion the previous week.
Investors borrow the money to buy newly issued securities backed by, among other things, auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration. That provides a source of financing for those loans.
The program, known as the Term Asset-Backed Securities Loan Facility, or TALF, started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit problems.
The central bank also ramped up its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Its holdings averaged $607 billion, up from $542.9 billion the previous week. The goal of the program, which began Jan. 5, is to drive down mortgage rates.
The Fed has pledged to purchase up to $1.25 trillion of the securities, along with $200 billion of debt issued by Fannie and Freddie.
Mortgage rates fell this week. Rates on 30-year home loans averaged 5.12 percent, the lowest since May and down from 5.29 percent last week, Freddie Mac reported Thursday. The 30-year fixed-rate mortgage averaged 6.47 percent a year ago.
The weekly lending report also showed the Fed's net holdings of "commercial paper" averaged $56.5 billion, a decrease of $3.5 billion from the previous week. That's an encouraging sign that investors' appetite for such help from the Fed has eased.
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, as the financial crisis intensified. At its peak in late January, the Fed held almost $350 billion of commercial paper.
Critics worry the Fed's actions put billions of taxpayers' dollars at risk. Some of the assets the Fed took on last year when it bailed out Bear Stearns and insurer American International Group Inc. have dipped in value.
The report also said that credit provided to AIG averaged $39.2 billion for the week ending Wednesday, down from $41.2 billion last week.
The central bank's balance sheet stands at about $2 trillion, up from nearly $1.99 trillion last week. The balance sheet has more than doubled since September, reflecting the Fed's many unconventional efforts various programs to lend or buy debt to mend the financial system and lift the country out of recession.
Link
http://www.housingzone.com/probuilder/articleXml/LN1028426938.html