Firms tap on Fed window

Goldman Sachs Group Inc. and Morgan Stanley, the two biggest U.S. securities firms, said they tried out a newly available Federal Reserve lending program this week.

In a move to help relieve the credit crunch and prevent another collapse of a Wall Street firm after Bear Stearns Cos. was forced to accept a fire-sale takeover by JPMorgan Chase & Co., the Fed on Sunday opened its so-called discount window to investment banks such as Goldman and Morgan Stanley. Traditionally the Fed has used the window to lend to commercial banks only.

Representatives of Goldman and Morgan Stanley emphasized that they were interested in the option for borrowing money overnight because it might be an attractive alternative, not because they faced a liquidity squeeze.

“We have tested the window because we want to remove the stigma from the window,” Morgan Stanley Chief Financial Officer Colm Kelleher said in an interview. “It’s meant to be there for normal business. It’s not meant to be there as a last-recourse thing.”

Goldman spokesman Michael DuVally said his firm was “testing” the Fed facility and would use it regularly “if doing so makes sense from an economic and funding diversification point of view.”

Securities firms can borrow from the Fed overnight at the discount rate, currently 2.5%. Commercial banks can borrow from the central bank for as long as 90 days; the Fed extended those terms from 30 days this month and from overnight in August.