Tags: US | Fed | Emergency | Lending

Commercial Banks Borrow Slightly More From Fed

Friday, 25 Jun 2010 08:00 AM

 

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Banks borrowed slightly more last week from the Federal Reserve's emergency lending program, the first increase since January.

Still, the total remained far below the levels it reached during the financial crisis as credit markets improve.

The Fed said Thursday that banks averaged $151 million in borrowing for the week that ended Wednesday. That was up by $47 million from the previous week's average, which was the lowest since March 2008, before the credit crunch began.

Loans from the central bank's emergency lending program, known as the discount window, had surged to a high of $110 billion a day during the height of the financial crisis in the fall of 2008. At the time, banks turned to the Fed as a lender of last resort because their sources of credit were frozen.

With financial and economic conditions improving, the Fed has been winding down its special lending programs. Still, the central bank's balance sheet has swollen to $2.4 trillion, more than double its pre-crisis level of less than $1 trillion.

The largest of these efforts was a $1.25 trillion program to purchase mortgage-backed securities issued by Fannie Mae and Freddie Mac in an effort to lower mortgage rates and provide a boost to the depressed housing market.

The Fed completed those purchases in March. The value of those securities fluctuates, and rose by about $7.4 billion to an average value of $1.13 trillion last week.

Some economists worried that mortgage rates would rise when those purchases ended, but so far they have fallen. Mortgage giant Freddie Mac said Thursday that rates fell this week to the lowest levels on records dating from 1971.

The average rate for 30-year fixed loans sank to 4.69 percent, from 4.75 percent last week, Freddie Mac said. Rates for 15-year and five-year mortgages also hit lows.

The European debt crisis has helped push mortgage rates down in the United States as foreign investors have moved money into the safety of U.S. assets, particularly U.S. Treasury securities.

The demand for Treasuries has caused Treasury yields to fall. And mortgage rates tend to track the yields on long-term Treasuries.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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