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UPDATE 1-Discount window borrowing largest since Sept

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NEW YORK, Dec 13 (Reuters) - Banks more than doubled their cash borrowings from the Federal Reserve’s discount window on Wednesday from a week earlier, data showed on Thursday.

The Fed released the data a day after it and several other central banks announced a plan to address funding needs.

Banks borrowed a total $4.514 billion at the primary credit discount window on Dec. 12, compared with $2.108 billion on Dec. 5, Fed data showed on Thursday.

It was the largest amount since $7.152 billion on Sept. 12, and the second largest amount since shortly after the Sept. 11, 2001, attacks on the United States.

Total loans at the discount window for Dec. 12 was $4.547 billion. Most all of the loans were extended to the New York region.

In August, the Fed cut the spread between the discount rate for primary credit and the federal funds rate and extended the term of lending to 30 days, from mostly overnight, to encourage banks to borrow more at the discount window, but its use had been somewhat limited.

In fact, the Fed announced on Wednesday that it would set up a third avenue for providing funds into the money market through a “term auction facility” (TAF). Terms of the first auction will be released on Friday. The first auction will be held next Monday, offering up to $20 billion over a 28-day term.

“Maybe people are starting to say if the Fed is doing this and will auction off credit anyway, why don’t I use my existing options, including the discount window,” said Doug Roberts, chief investment strategist with Channel Capital Research in Shrewsbury, New Jersey.

He added that indirectly the TAFs and the discussions on collateral that can be used in these may be helping to erase some of the stigma of the discount window.

Discount window borrowing also rose because it covered the year end. Banks also likely found it cheaper to borrow from the discount window compared with market rates, which have remained elevated since mid-November. (Reporting by Tamawa Kadoya and John Parry; Editing by Leslie Adler)

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