Wall Street borrows less from Fed
Could be a sign of credit-crisis easing
WASHINGTON — Wall Street investment houses sharply scaled back their borrowing from the Federal Reserve’s emergency lending program over the past week while commercial banks boosted it slightly.
Investment firms averaged $1.7 billion in daily borrowing for the week ending July 2. That compared with $6.1 billion the previous week.
The reduction suggested the Wall Street firms are feeling less of a need to turn to the Fed for quick source of cash, an encouraging sign.
The figures indicate that Wall Street is using the Fed only as an emergency backstop, rather than as a continuing source of funding, said Macroeconomic Advisers LLC senior economist Brian Sack. Treasury Secretary Henry Paulson warned dealers and investors this week they shouldn’t operate as if Fed funds were “readily available.”
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. The company was taken over by JPMorgan.
Banks, meanwhile, averaged $14.9 billion in daily borrowing for the week. That compared with $14.7 billion in the previous week. The pickup indicated that banks are still going to the Fed to help them overcome credit stresses.
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.
Separately, as part of efforts to relieve credit strains, the Fed auctioned $26.1 billion in Treasury securities to investment companies Thursday.
The auction drew bids for less than the $50 billion the Fed was making available, which was viewed as possible sign of some improvements in credit conditions.
