Investment Houses Pull Back on Emergency Fed Loans
Wall Street companies are scaling back their borrowing from the Federal Reserve's emergency lending program.
A Fed report Thursday says the investment firms averaged $8.26 billion in daily borrowing over the past week. That compared with $12.33 billion the previous week. The investment houses were given similar loan privileges as commercial banks in March after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy and raised fears that other Wall Street firms might be in jeopardy.
Earlier this week, Lehman Brothers Holdings Inc. refuted market rumors that the investment bank was forced to tap the Fed's emergency lending program to stave off cash problems. A company official maintained that the investment bank's books remain liquid, and that it had "well over" $40 billion in liquidity at the end of the second quarter.
Meanwhile, banks borrowed at about the same hefty pace, according to the Fed report. They averaged $15.92 billion in daily borrowing for the week ending June 4. That compared with a record high of $15.95 billion in the previous week. The identities of commercial banks and investment houses are not released.
In the broadest use of the central bank's lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans. The program will continue for at least six months. Commercial banks and investment companies now pay 2.25 percent in interest for the loans. As part of efforts to relieve credit strains, the Fed auctioned $26.9 billion in Treasury securities to investment companies Thursday.
The auction drew bids less than the $50 billion the Fed was making available, which could be a sign of some improvements in credit conditions. In exchange for the 28-day loans of Treasury securities, bidding companies can put up as collateral more risky investments. These include certain mortgage-backed securities and bonds secured by federally guaranteed student loans.
Source: http://abcnews.go.com/Politics/wireStory?id=5008646