Banks, investment firms ramp up Fed borrowing

WASHINGTON — Banks and investment firms ramped up borrowing from the Federal Reserve's emergency lending facility over the past week, providing fresh evidence of the credit stresses squeezing the country.

The Fed's report released Thursday said commercial banks averaged $44.5 billion in daily borrowing over the past week. That compared with a daily average of $39.36 billion in the previous week.

For the week ending Wednesday, investment firms drew $147.7 billion. That was up significantly from $88.15 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch.

The Fed report also showed that $122.1 billion worth of loans were made to money market mutual funds — via banks — to help the funds, which have been under pressure as skittish investors demand withdrawals.

The report comes as Washington policymakers battle the worst financial crisis since the stock market crash of 1929.

Fed Chairman Ben Bernanke has urged quick action by Congress on a $700 billion plan to buy bad assets from banks and other institutions to shore up the financial industry. He has warned that failing to do so would let problems fester, pushing the country into a recession and driving unemployment and home foreclosures even higher.

Investment houses in March 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. The situation raised fears that other Wall Street firms might be in jeopardy.

Bear Stearns was eventually taken over by JPMorgan Chase & Co. in a deal that involved the Fed's financial backing.

The identities of commercial banks and investment houses that borrow are not released. Commercial banks and investment companies now pay 2.25 percent in interest for the loans.

In the broadest use of the central bank's lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans. The Fed has since extended those loan privileges into next year.