Firms borrow less from program

WASHINGTON (AP) — Banks and investment firms borrowed far less over the past week from the Federal Reserve’s emergency lending program, a hopeful sign some credit stresses are easing.

The Fed on Thursday said commercial banks averaged $40.9 billion in daily borrowing over the past week that ended Wednesday. That was down from $44.8 billion in the week that ended April 29.

Investment firms drew just $643 million over the past week from the Fed program, down from an average of $5.5 billion the previous week.

The identities of financial institutions are not released. They pay just 0.50 percent in interest for the emergency loans.

In another encouraging sign, the report also showed that the Fed’s net holdings of “commercial paper” averaged $164.7 billion over the week ending Wednesday, a decrease of $58 billion from the previous week.

Commercial paper is the crucial short-term debt that companies use to pay everyday expenses, which the Fed began buying under the first-of-its-kind program on Oct. 27, a time of intensified credit problems. The central bank has said about $1.3 trillion worth of commercial paper would qualify.

The Fed also said its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae averaged $365.8 billion over the past week, down nearly $1.9 billion from the previous week. The goal of the program, which started Jan. 5, is to help the crippled mortgage-finance and housing markets. Mortgage rates have dropped since the Fed announced the creation of the program late last year.

Rates on 30-year mortgages nudged up this week but are still close to record lows. Average rates on 30-year, fixed-rate mortgages, the most popular loan among home buyers, rose to 4.84 percent, from 4.78 percent last week, which tied a record low.

Squeezed banks and investment firms are borrowing from the Fed because they can’t get money elsewhere. Investors have cut them off and shifted their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lending it to each other or customers. The lockup in lending has contributed to the recession, which is now the longest since World War II.

Investment houses in March 2008 were given similar emergency-loan privileges as commercial banks after a run on Bear Stearns pushed what was the nation’s fifth-largest investment bank to the brink of bankruptcy and into a takeover by JPMorgan Chase & Co.

Critics worry the Fed’s actions have put billions of taxpayers’ dollars at risk. Bolstering those concerns, the assets the Fed took on last year when it bailed Bear Stearns and American International Group Inc. have dipped in value.