Fed auctions another $25 bn in loans to banks

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(Agencies)
Updated: 2008-09-10 11:58

WASHINGTON -- The Federal Reserve has auctioned another $25 billion in loans to squeezed banks to help them overcome credit problems.

The central bank on Tuesday released the results of its most recent auction.

It's part of an ongoing program started in December that seeks to ease financial turmoil and credit stresses. Those programs -- along with the depressed housing market -- have badly pounded the economy, forcing companies and people to clamp down.

In the latest auction, commercial banks paid an interest rate of 2.670 percent for the 84-day loans. There were 38 bidders. The Fed received bids for $31.64 billion worth of the loans. The auction was conducted on Monday with the results made public on Tuesday.

The Fed in mid-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 help them over the credit hump. In late July, the Fed expanded the program, making the longer 84-day loans available, besides the existing 28-day loans.

The worst global credit crisis seen in decades 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 oxygen. It permits people to finance big-ticket purchases, such as homes and cars, and helps businesses expand operations and hire workers.

Wanting to avert a broader panic that could endanger the entire US financial system, the Fed has taken a number of extraordinary actions to provide relief.

In its broadest extension of lending authority since the 1930s, the central bank agreed in March to temporarily let investment firms obtain emergency, overnight loans directly from the Fed, a privilege that only commercial banks had been granted.

The Bush administration stepped in Sunday to snatch control of troubled mortgage giants Fannie Mae and Freddie Mac, effectively putting the government at the heart of the mortgage-finance business.

The takeover has the potential to put billions of taxpayers' dollars at risk. The action means that Fannie and Freddie won't be tapping the Fed's emergency borrowing program for a quick source of cash. The Fed in July told the companies that they could draw loans directly from the central bank if they needed cash to stay afloat.