NEW YORK Primary dealers more than doubled
their direct borrowing from the Federal Reserve to $32.92
billion a day in the latest week, showing they needed cash amid
ongoing strains in global money markets.
The volume of borrowing at the discount window contrasts
with the impression of lackluster demand for Treasuries from
dealers in a $75 billion 28-day Federal Reserve Term Securities
Lending Facility (TSLF) auction just hours before the Fed
released its weekly discount window data on Thursday.
Analysts had initially interpreted the auction to show that
dealers' need to park tainted mortgage assets temporarily at
the central bank in exchange for Treasuries they can lend out
for cash was less pressing than earlier thought.
But the huge volume of borrowing at the discount window,
exceeding even last week's hefty sums, appeared to signal that
the financial system is indeed heavily reliant on the Fed's
support to continue functioning smoothly.
"I wouldn't get too carried away by the inferred signs of
strength of the financial sector from the TSLF auction," said
Josh Stiles, bond strategist and managing director with
IDEAglobal in New York.
The pace of discount window borrowing from primary dealers
"paints a little bit of a different picture," he said.
That scenario is more somber, Stiles said, adding that
beleaguered financial stocks may have a long way to fall.
In just the second week that non-commercial banks have been
allowed to tap the Fed directly for funds via the discount
window, the amount outstanding attributable to Wall Street
banks as of Wednesday had mushroomed to $37.02 billion from
$28.80 billion a week earlier, the Fed data showed.
Total discount window borrowing averaged $33.48 billion a
day in the latest week, up from $19.05 billion the previous
week, the data showed.
(Reporting by John Parry; Editing by Dan Grebler)