U.S. banks cut Fed borrowing as credit eases

The reductions indicate that banks are having an easier time obtaining credit and don't have to rely as much on the Fed for short-term loans.

Banks averaged US$28.7 billion in daily borrowing over the week ended Wednesday, down from US$30.4 billion in the week ended Sept. 9.

Banks borrow from the Fed when they have trouble getting the money elsewhere. At the height of the financial crisis last fall, investors cut banks off and shifted money into safer Treasury securities.

Financial institutions hoarded much of their cash, rather than lending it to each other or customers. That lockup in lending worsened the recession, the worst since World War II.

The Fed has pumped trillions of dollars into the financial system through an array of short-term lending programs in an effort to ease the crisis.

The identities of the financial institutions that receive emergency loans are not released. They pay just 0.50 percent in interest for the loans.

Banks also made less use of another program aimed at increasing the availability of short-term financing crucial for paying salaries and supplies. The Fed's net holding of “commercial” paper averaged US$44.8 billion, a drop of US$2.36 billion from the previous week.

Commercial paper is the crucial short-term debt that companies use to pay everyday expenses, which the Fed began buying under the first-of-its-kind program on Oct. 27, as the financial crisis intensified. At its peak in late January, the Fed held almost US$350 billion of commercial paper.

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