Fed emergency loans to banks decline

Banks borrowed less from the Federal Reserve's emergency lending program over the past week, another sign that strains on private credit markets are easing.

Commercial banks averaged $13.96 billion in daily borrowing for the week that ended Wednesday, the Fed reported. That was down from $14.26 billion in average borrowing in the previous week. At the height of the financial crisis, discount window borrowing exceeded a daily average of $100 billion.

The Fed last week boosted the interest rate it charges on discount window borrowing by a quarter-point to 0.75 percent as part of the central bank's efforts to unwind the exceptional support that had been provided during the financial crisis.

Banks have been scaling back their use of the Fed's emergency discount loan window as the financial crisis has eased and banks have found their normal sources of credit more readily available.

The central bank is phasing out a number of emergency programs it had created to deal with the financial crisis which struck with force in the fall of 2008.

The Fed's weekly status report on Thursday showed that banks are making less use of many of these programs.

The average value of the central bank's holdings of short-term debt known as "commercial paper" stood at an average of zero for the week ending Wednesday.

The Fed had established the program to purchase commercial paper as a way to increase the availability of financing used by businesses to fund crucial operations such as payroll and supplies. At its peak in January 2009, the Fed held almost $350 billion worth of commercial paper.

The Fed said that banks' use of short-term loans drawn from the Fed's "term auction credit" program stood at an average of $15.43 billion for the last week, down by $1 billion from the previous week.

Even with all the reductions, the Fed's balance sheet — a broad measure that tracks the Fed's lending activities — stood at $2.29 trillion for the recent week, more than double the level before the financial crisis struck.

www.yahoo.com