Fed lends more to banks, N.Y. dominates auction

By Richard Leong

NEW YORK (Reuters) - U.S. banks increased their borrowings from the Federal Reserve in the latest week, while New York-area banks received the bulk of funds from the Fed's first special auction aimed to alleviate credit tightness, Fed data released on Thursday showed.

Banks borrowed $4.828 billion a day on average from the Fed's discount window in the week ended December 26, higher than the average daily rate of $4.619 billion in the previous week, the Fed said.

On Wednesday, discount window borrowing totaled $4.535 billion, compared with $4.765 billion a week earlier, according to the Fed.

In addition, the Fed said it awarded New York-area banks $16.49 billion of the $20 billion awarded in its first-ever auction from its Term Auction Facility, or TAF, established earlier this month to ease the global credit squeeze.

The TAF data suggested that foreign banks with U.S. operations pushed hard to obtain funds, said Lou Crandall, chief economist at Wrightson ICAP in New York.

"It would be consistent with the notion that U.S. branches of foreign banks were aggressive bidders," Crandall said.

"I wouldn't be surprised to see New York (banks) dominate again," Crandall said of future TAF auctions.

The Fed is scheduled to conduct at least two more TAF auctions in January.

Meanwhile, banks in the Dallas Fed district were awarded the second-highest amount, totaling $1.4 billion, from the auction of 28-day funds held on December 17, the Fed said.

Banks in the St. Louis Fed district were awarded the third-highest amount from the 28-day fund auction with $1 billion.

Banks in 6 of the 12 Fed districts did not receive any funds from the first TAF auction, which settled on December 20.

(Reporting by Richard Leong; Editing by Leslie Adler)