Banks borrow record from Fed as last resort

NEW YORK (Reuters) - U.S. banks’ borrowed a record $367.8 billion per day from the Federal Reserve in the latest week, as financial institutions relied heavily on the lender of last resort amid the most severe credit crisis since the Great Depression.

The federal Reserve Building in Washington, September 16, 2008. REUTERS/Jim Young

With interbank lending markets frozen and commercial paper markets near paralyzed, there is virtually nowhere else where banks can get short term funding except the central bank.

Banks’ discount window borrowings averaged $367.80 billion per day in the week ended October 1, nearly double the previous record daily average of $187.75 billion last week, Federal Reserve data released on Thursday showed.

“Each time it gets more and more stunning,” said Michael Feroli, economist at JPMorgan in New York. “You’re just seeing huge increases across the board. It tells you that the paralysis is massive.”

Primary credit borrowings averaged a record $44.46 billion per day in the latest week, versus $39.36 billion the previous week.

Primary dealers and other broker dealers credit borrowings were $146.57 billion as of Wednesday Oct 1, up from $105.66 billion on September 24.

Loans in the “other credit extensions” category, including loans to insurer AIG were $61.28 billion as of October 1, versus $44.57 billion on September 24.

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The Federal Reserve’s lending to U.S. depository institutions and bank holding companies, to finance their purchases of high-quality asset-backed commercial paper from money market mutual funds via a new lending facility the Fed announced on September 19, jumped in the latest week.

Lending via the asset-backed commercial paper money market mutual fund liquidity facility surged to $152.1 billion as of October 1, from $72.67 billion on September 24.

The Fed designed the loan facility to help money market funds meet huge demands for redemptions from fearful investors over the past week after one U.S. money market mutual fund’s value fell below $1 a share, and to foster liquidity in the asset-backed commercial paper markets.

Proceeds in the U.S. Treasury supplementary financing account were $344.47 billion on October 1, versus $159.81 billion on September 24, the Fed said.

Reporting by John Parry and Pedro DaCosta;