Upbeat sign in credit crisis
In a sign of some improvement in the credit crisis, Wall Street firms for the first time didn’t borrow from the Federal Reserve’s emergency lending program and commercial banks also scaled back.
Investment firms didn’t draw such loans for the week ended Wednesday, and they borrowed just $1.7 billion in the week ended July 2, down from $6.1 billion the previous week. Such borrowing rose as high as $38.1 billion in early April.
The Fed opened its emergency program to investment firms March 17.
At that time, the investment houses were given similar loan privileges as commercial banks after a run on Bear Stearns Cos. pushed the nation’s fifth-largest investment bank to the brink of bankruptcy. The situation raised fears that other Wall Street firms might be in jeopardy. Bear Stearns was eventually taken over by JPMorgan Chase & Co. in a deal that involved the Fed’s financial backing.
Banks, meanwhile, averaged $12.9 billion in daily borrowing over the last week. That compared with $14.9 billion in the previous week.
The identities of commercial banks and investment houses are not released.
In the broadest use of the central bank’s lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans. The program will continue for at least six months. Commercial banks and investment companies now pay 2.25% in interest for the loans.
Separately, as part of efforts to relieve credit strains, the Fed auctioned $21.3 billion in Treasury securities to investment companies Thursday.
The auction drew bids for less than the $25 billion the Fed was making available, which was viewed as a possible sign of some improvement in credit conditions.
In exchange for the 28-day loans of Treasury securities, bidding companies can put up as collateral more risky investments. These include certain mortgage-backed securities and bonds secured by federally guaranteed student loans.
The auction program, which began March 27, is intended to make investment companies more inclined to lend to each other.
