Banks Reduce Borrowing from Federal Reserve’s Emergency Lending Facility

Over the last week, Banks decreased their borrowing from the Federal Reserve’s emergency lending facility and decreased their participation in other programs intended to ease the financial crisis, leading some to believe that the credit markets are finally thawing out.

In a report issued by the Fed on Thursday, it said that banks averaged $30.4 billion in daily borrowing during the 7 days trailing Wednesday of this week, down from $32.7 billion the week before.

The banks borrowing from this facility have not been released by the Fed over fears that participation in the program may hinder the stock price of participating banks. The banks using the program pay just 0.50% for these emergency, overnight loans.

Another Federal Reserve lending program aimed at increasing the availability of short-term financing, which is crucial in paying for office supplies and salaries. The Federal Reserve’s net holding of commercial paper averaged $47.1 billion this week, a decline of $1 billion from the week previous.

This week, the Fed stepped up purchases of mortgage-backed securities issued by lending behemoths and wars of the state, Fannie Mae, Freddie Mac and Ginnie Mae. These purchases averaged $625.3 billion over the last week, up from $886 million from the week previous. The goal of this program is to drive down interest rates on home mortgages. Currently 30 year rates are averaging 5.07%, down from 5.08% the week previous.

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