Discount window lending is up

Federal Reserve daily average discount window lending to banks rose $115 million to an average of $1.32 billion for the week ended Wednesday, as banks used the central bank’s liquidity backstop.

The figure compares with $1.2 billion the previous week, which was the most since 2001 and was stoked by a show of support from the four biggest U.S. lenders.

The Fed is trying to restore confidence to markets by offering loans at half a percentage point lower than usual and letting firms support clients by channeling cash through their securities units.

Fed officials cut the discount rate by half a percentage point to 5.75% on Aug. 17 and encouraged borrowing as a funding backstop for banks.

Only institutions that take deposits can use the Fed’s discount window, so mortgage finance companies that rely on capital markets to raise money are excluded.

Last week, the four largest U.S. banks each borrowed $500 million from the Fed. Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wachovia Corp. said they had access to cheaper funds but were borrowing from the Fed to encourage others to do the same.