From the AP
Big Wall Street investment companies are pulling back slightly on their borrowing from the Federal Reserve’s emergency lending program.
A central bank report Thursday said they averaged $32.6 billion in daily borrowing over the past week. That compares with $38.1 billion in the previous week and $32.9 billion before that.
T.J. Marta, a fixed-income strategist at RBC Capital Markets, viewed the pullback as a positive sign. “Conditions in this particular part of the financial markets are easing up somewhat,” he said.
The program, which began March 17, is part of the Fed’s effort to aid the troubled financial system, whose problems threaten the nation’s economic health. In the program’s first week, investment firms borrowed $13.4 billion.
The Fed has agreed, for the first time, to let big investment houses temporarily get emergency loans right from the central bank. This mechanism, similar to one available for commercial banks for years, will continue for at least six months. It was the broadest use of the Fed’s lending authority since the 1930s.
Fed Chairman Ben Bernanke and his colleagues started the program as policymakers raced to deal with the sudden crash of the venerable Wall Street firm Bear Stearns Cos., which was on the brink of bankruptcy.
The Fed feared that other investment houses could be in jeopardy given the intense fear that gripped the markets at that time. So the Fed acted to give them a place to go for overnight cash loans.
The program is seen as similar to one the Fed has for commercial banks, where the Fed acts as a lender of last resort. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.
