Fed Emergency Loans to Banks Decline

Banks once again reduce their borrowing from the Federal Reserve's emergency loan window

Banks borrowed less from the Federal Reserve's emergency lending program over the past week, another sign that strains on private credit markets are easing.

Commercial banks averaged $14.86 billion in daily borrowing for the week that ended Wednesday, the Fed reported. That was down from $15.1 billion in average borrowing for the previous week.

Banks have been scaling back their use of the Fed's emergency discount loan window as the financial crisis has eased. At the peak of the crisis, which struck with force in the fall of 2008, banks' daily borrowing from the discount window reached $110 billion as banks found their normal sources of credit frozen.

The Fed said Wednesday that "in light of improved functioning of financial markets" it would phase out as previously scheduled by Feb. 1 a number of the emergency programs it created to deal with what was the worst financial crisis to hit the country since the 1930s.

The Fed's weekly status report on Thursday showed that banks are making less use of many of these programs.

The average value of the central bank's holdings of short-term debt known as "commercial paper" declined by $2.61 billion for the week ending on Wednesday to $11.20 billion.

The Fed established the program to purchase commercial paper as a way to increase the availability of financing used by businesses to fund crucial operations such as payroll and supplies. At its peak in January 2009, the Fed held almost $350 billion worth of commercial paper.

The Fed said that banks' use of short-term loans drawn from the Fed's "term auction credit" program were unchanged at an average of $38.5 billion this past week, far below the $377.33 billion average for these loans a year ago.

Even with all the reductions, the Fed's balance sheet — a broad measure that tracks the Fed's lending activities — stood at $2.29 trillion for the recent week, more than double the level before the financial crisis struck.

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