Banks Trim Borrowing From Fed

WASHINGTON, DC - Commercial banks and investment firms borrowed less over the past week from the Federal Reserve's emergency lending program, a hopeful sign some credit stresses are easing a bit. The Federal Reserve said Thursday that commercial banks averaged $48.5 billion in daily borrowing over the week that ended Wednesday. That was down from $49.2 billion in average daily borrowing logged over the week ended April 8.

Investment firms drew $12.9 billion over the past week from the Fed program. That was down from an average of $17.6 billion the previous week. The identities of financial institutions that borrow from the Fed program are not released. They now pay just 0.50 percent in interest for the emergency loans.

The Fed reported that its net holdings of "commercial paper" averaged $250.2 billion over the week ending Wednesday, a decline of $349 million from the previous week.

The Fed began buying commercial paper — the crucial short-term debt that companies use to pay everyday expenses — last October when the market for this debt dried up in the wake of the worst financial crisis to hit the country in seven decades. The Fed has said up to $1.3 trillion in commercial paper could qualify.

The Fed also said its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae averaged $287.2 billion over the past week, an increase of $50.6 billion from the previous week. The goal of the program, which started Jan. 5, is to bolster the market for home mortgages and help combat the most severe housing slump in decades.

Mortgage rates have been dropping since the Fed announced creation of the program last year. Rates on 30-year mortgages dropped to 4.82 percent this week, down from 4.87 percent last week, only slightly higher than the record low of 4.78 percent reached the week of April 2.

Investment banks a year ago were given access to the Fed's emergency loan program in the wake of the near-collapse of Bear Stearns, which at the time was the nation's fifth-largest investment bank before it was taken over by JPMorgan Chase & Co. Critics worry the Fed's actions have put billions of taxpayers' dollars at risk.

The central bank's balance sheet now stands at $2.098 trillion, up $29.2 billion from the daily average for the week ending April 8. The balance sheet has more than doubled since September, reflecting the Fed's many unconventional efforts to pump money into the financial system to combat the credit crisis.

Some economists worry that the huge expansion of Fed-supported credit could lead to inflation problems down the road. But Fed Chairman Ben Bernanke this week repeated assurances that the central bank will begin draining the extra resources from the banking system once there are signs the crisis has abated.