Fed emergency loans to banks up slightly

(AP) — Banks borrowed slightly more from the Federal Reserve's emergency lending program over the past week but the amount was still well below levels reached during the height of the financial crisis, the Fed said Thursday.

Commercial banks averaged $19.45 billion in daily borrowing for the week that ended Wednesday. That was up from $18.74 billion in average borrowing for the previous week.

As financial conditions have improved, banks have scaled back their use of the Fed's emergency discount loan window. At the peak of the crisis, which struck in the fall of 2008, banks' daily borrowing from the discount window reached $110 billion, reflecting banks' serious trouble getting loans through normal private-market channels.

Banks, whose identities are not released, pay interest of just 0.50 percent on the emergency loans.

The central bank's weekly accounting of its balance sheet provided other evidence of improvement in credit markets.

It showed that over the past week, banks and other institutions made no use of a separate "commercial paper" program that was created to boost the availability of short-term financing crucial for paying salaries and supplies. At its peak in January 2009, the Fed held almost $350 billion worth of commercial paper.

Banks have also been cutting back on short-term loans drawn from the Fed's "term auction credit" program. Those loans averaged $75.92 billion in the week ending Wednesday, unchanged from the previous week. That was down sharply from the $406.8 billion daily average for the first week in January 2009.

Even with all the reductions, the Fed's balance sheet — a broad measure that tracks the central bank's lending — is still at $2.2 trillion, more than double the level before the crisis struck. The bloated balance sheet underscores the scale of efforts the Fed has undertaken to stabilize an economy hit with the worst financial crisis in seven decades.

Under one such program, the Fed is on track to buy $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. According to the latest report, the central bank was holding an average of $908.48 billion of these securities in the past week.

According to minutes of the Fed's Dec. 15-16 meeting which were released Wednesday, Fed officials were split on how to proceed to wind down the mortgage program with some saying a weak economy could warrant expansion of the program beyond its current scheduled end-date of March 31. However, at least one Fed official argued for scaling the program back given the improvement in economic and financial conditions.

The mortgage security purchase program is designed to keep mortgage rates attractively low, helping to boost home sales and get the housing market out of a severe slump.