Investment Firms Borrowing from Fed’s New Program
The Federal Reserve's new direct lending program is in full gear with Wall Street firms submitting their hard-to-trade securities for funds from the central bank.
According to the Fed, the program, which began on Monday, drew an average of $13.4 billion in daily borrowing in the week ending Wednesday. The firms had $28.8 billion in loans outstanding at the end of Wednesday.
The Fed announced the program Sunday night, extending its lending beyond banks, which are under its direct supervision, for the first time since the 1930s. A key goal: building confidence on Wall Street to prevent the kind of liquidity crisis that forced Bear Stearns Cos. into the arms of J.P. Morgan Chase & Co. at a fire-sale price.
The Fed didn't disclose the size of individual loans or the borrowers' identities. Some Wall Street executives have suggested they were using the overnight-lending program to borrow small amounts, but the size of the total borrowing suggests broader interest from the 20 securities dealers eligible for the loans. (In Europe, central banks flooded the continent's financial system with extra funds Thursday.)
In its regular weekly report, the Fed also disclosed that it extended an average of $5.5 billion of credit a day over the past week related to its effort to avert a bankruptcy filing by Bear Stearns. Fed officials feared that the firm's collapse would cascade through markets and lead to runs on other investment banks.
Last Friday, the Fed extended 28-day loans to Bear Stearns to allow it to remain afloat, but that was fully paid back by Monday. On Sunday, the Fed also promised $30 billion in financing for troubled investments on Bear Stearns' books to support the firm's sale to J.P. Morgan. The Fed's release Thursday said there was no credit outstanding tied to the Bear Stearns agreements, indicating the $30 billion may not have been drawn down yet.
Published on March 21, 2008
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