Dealers swift to borrow from Fed under new rules

NEW YORK Thu Mar 20, 2008 9:17pm EDT

NEW YORK (Reuters) - Primary dealers borrowed more than $13.4 billion a day from the Federal Reserve in the latest week, showing brokers were swift to take advantage of new rules allowing them to obtain loans directly from the central bank.

Dealers had borrowed nearly $29 billion by Wednesday, Federal Reserve data released on Thursday showed. Under normal market conditions that would be viewed as an extraordinarily high figure. But analysts said they wouldn't be surprised to see the number grow as dealers seek more financing directly from the Fed to shore up balance sheets depleted by the credit market crisis.

The Fed data also showed that Bear Stearns Cos BSC.N received an average of $5.53 billion a day over the period of the credit facility arranged for it by JPMorgan Chase (JPM.N). Bear's borrowing totaled $12.9 billion over the period of that credit facility, which the Fed arranged with JPMorgan last week to help rescue the ailing investment bank.

Together, total discount window borrowing came to $19.05 billion a day in the latest week, the data showed.

Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N) and Lehman Brothers LEH.N said they were tapping the discount window to borrow money directly from the Fed this week.

"It looks like dealers made a reasonable first draw. That is a good start," said Carl Kaufman, portfolio manager for fixed income with Osterweis Capital Management in San Francisco. "I think the facility is doing its job," Kaufman said. "In normal markets this would be a very large number, but now $29 billion for the entire dealer community does not seem to be a large number," he said.

That new Fed facility for primary dealers, the Primary Dealer Credit Facility (PDCF) became operational on Monday March 17.

Primary credit borrowings in the latest week were $81 million, versus $99 million the week before, the Fed data showed.

(Reporting by John Parry; Editing by Diane Craft)

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