U.S. banks borrow more from the emergency Fed program this week

The Fed said commercial banks averaged US$22.6 billion in daily borrowing over the week that ended Wednesday. That's up US$32 million from the week ended Oct. 28, but is far less than the US$110 billion they borrowed a year ago at the height of the financial crisis.

The increase, while slight, was the first since the week of Sept. 2.

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

The banks sharply cut their use of a separate program intended to boost the availability of short-term financing crucial for paying salaries and supplies.

Under that program, the Fed's net holdings of “commercial paper” averaged US$15.6 billion, a drop of US$16.6 billion from the previous week. At its peak in late January, the Fed held almost US$350 billion of commercial paper.

Meanwhile, banks' use of short-term loans drawn from the Fed's “term auction credit” facility averaged US$139.2 billion, unchanged from the previous week.

The limited borrowing shows banks are having a slightly easier time getting short-term loans in private markets.

But the improvement hasn't necessarily translated into easier terms for businesses and individuals. For them, the flow of credit is not back to normal. That's one reason Fed Chairman Ben Bernanke and other economists believe the nascent economic recovery will be weak.

The report Thursday also showed that the central bank is slowing its purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. Its holdings were valued at US$774.5 billion over the past week, a drop of US$1.6 billion from the previous week.

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