January 3, 2008 / 10:15 PM / 10 years ago

UPDATE 2-Fed discount window borrowing largest since 9/11

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NEW YORK, Jan 3 (Reuters) - U.S. banks' direct borrowings from the Federal Reserve for the week ended Wednesday surged to the largest amount since the week shortly after the Sept 11, 2001 attacks, data from the U.S. central bank showed on Thursday.

Primary credit borrowings at the Fed's discount window totaled $5.770 billion for the week ended Jan. 2. That was the largest weekly amount since the week of Sept. 12, 2001, when it hit $11.742 billion.

Overall discount window borrowing averaged $5.787 billion a day in the week ended Jan. 2, also the largest since the week of Sept. 12, 2001, when it averaged $11.47 billion.

Data also showed that New York-area banks were awarded $17.467 billion in the second $20 billion auction under the Fed's term facility, compared with $16.49 billion in the first auction.

San Francisco-area banks received $1.091 billion while Richmond-area banks were allotted $750 billion.

The so-called TAF auctions were designed for the Fed to counter a deepening credit crunch. Two more auctions are scheduled for January.

By offering funds to a wider range of banks compared with its open market operations, it did not carry the so-called "stigma" associated with the discount window.

Since August, the Fed has lowered the discount rate for primary credit borrowings to encourage banks to borrow at the discount window. But after an initial surge, borrowings had been subdued and some perceived that it was because borrowing at the discount window has been perceived as a sign of financial distress.

But the discount window stigma was not evident in December and as credit conditions continue to be tight, banks might have been more willing to borrow at the discount window if the rate was favorable.

The discount rate is now 4.75 percent, or 50 basis points above the benchmark fed funds rate.

For Jan. 2, the single-day primary credit borrowings totaled $4.918 billion, the largest amount since Sept. 12, 2007 and the second largest single day tally since the $45 billion borrowed just after the Sept. 11 attacks.

Borrowing at the discount window had increased sharply since early December as banks sought to raise funds covering the year-end and as market rates such as Libor soared.

Overall discount window borrowing for Jan. 2 totaled $4.923 billion. (Reporting by Tamawa Kadoya and David Lawder; editing by Gary Crosse)

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