US Fed Discount Window Borrowing Continues To Hit New Highs

US Fed Discount Window Borrowing Continues To Hit New Highs
   By Meena Thiruvengadam    Of DOW JONES NEWSWIRES     


WASHINGTON (Dow Jones)--Borrowing from the U.S. Federal Reserve's expanded discount window continued to skyrocket to new highs, reaching a total of $409.52 billion Wednesday as the fate of a proposed $700 billion plan aimed at repairing strained credit markets remained unclear.

The Fed on Thursday said total borrowing at the discount window, including both depository institutions and primary dealers, rose more than 50% to $409.52 billion Wednesday from $262.34 billion in the prior week. Total average daily borrowing also jumped to $367.80 billion in the week of Oct. 1 from a previous record $187.75 billion in the prior week.

Borrowing from the Fed has grown dramatically in recent weeks as already tight credit markets have come under increasing pressure.

Lending through the Fed's primary dealer credit facility, created in March for investment banks in the wake of the near-collapse of Bear Stearns, reached a new record of $146.57 billion Wednesday after hitting $105.66 billion a week earlier. Average daily borrowing through that facility also rose to $147.69 billion from $88.15 billion in the previous week. The figures includes loans made to broker-dealers Goldman Sachs, Morgan Stanley and Merrill Lynch as well as their U.K. counterparts.

The primary dealer credit facility marks the first time since the Great Depression that non-bank primary dealers have been allowed to borrow from the Fed's discount window, a privilege usually reserved for more closely regulated commercial banks. In recent weeks, the Fed said it would accept a broader range of collateral, including non-investment grade securities and equities, in exchange for loans from the facility.

Lending through the primary credit facility, used by commercial banks, Wednesday rose to a record $49.52 billion, from $39.32 billion set last week. Average daily lending through the primary credit facility also continued to soar, climbing to $44.46 billion from a prior record $39.36 billion in the previous week, the report said.

Separately, the Fed said a loan to troubled insurer American International Group Inc. (AIG) on Wednesday totaled $61.28 billion, more than half of the insurer's $85 billion credit line with the central bank.

The Fed also said it provided $152.11 billion in credit Wednesday through its Boston branch for a recently announced money-market mutual fund liquidity facility, more than double the $72.67 billion it provided on the previous Wednesday.

The Fed's holdings of Treasurys securities expanded slightly in the week ended Oct. 1, growing $43 million to $476.62 billion, according to Thursday's report. A year ago, the Fed's balance sheet showed it held nearly $800 billion in Treasury securities.

Average daily borrowing of seasonal credit fell $21 million in the week to $74 million, according to Thursday's report. Seasonal credit borrowing Wednesday was at $42 million.

-By Meena Thiruvengadam; Dow Jones Newswires; 202-862-9255; meena.thiruvengadam@dowjones.com

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(END) Dow Jones Newswires

October 02, 2008 16:41 ET (20:41 GMT)


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