WASHINGTON Battling to relieve stressed credit markets, the Federal Reserve has provided a total of $360 billion in short-term loans to squeezed banks since December to help them overcome credit problems.
The central bank on Tuesday announced the results of its most recent auction the 10th since the program started in December, where commercial banks bid to get a slice of another $50 billion in the short-term loans.
It's part of an ongoing effort by the Fed to help ease the credit crunch, which erupted last August, intensified in December and January and took another turn for the worst in March with the sudden crash of Bear Stearns, the nation's fifth-largest investment house.
The mighty blows of the housing, credit and financial crises threaten to push the country into a deep recession.
In the latest auction, commercial banks paid an interest rate of 2.870 percent for the loans.
There were 83 bidders for the slice of the $50 billion in 28-day loans. The Fed received bids for $88.3 billion worth of the loans. The auction was conducted on Monday with the results released Tuesday.
The Fed, around the middle of December, announced it was creating an auction program that would give banks a new way to get short-term loans from the central bank and to help them over the credit hump. A global credit crisis has made banks reluctant to lend to each other, which has crimped lending to individuals and businesses.
The smooth flow of credit is the economy's life blood. It permits people to finance big-ticket purchases, such as homes and cars, and help businesses to expand operations and hire workers.
Credit problems worsened earlier this year, driving Bear Stearns to the brink of bankruptcy and spurring fears other big Wall Street firms could be in jeopardy. Wanting to avert a broader panic that could endanger the entire U.S. financial system, the Fed took a number of extraordinary moves to provide relief. In its broadest extension of lending authority since the 1930s, the central bank agreed to temporarily let investment firms obtain emergency loans directly from the Fed, a privilege that only commercial banks had been granted.
The toll of housing and credit problems, however, have made both people and businesses more cautious in their spending. And that has significantly weakened the overall economy.