Tuesday, April 1, 2008

Fed lends $75B worth of securities to investment banks

By Jeannine Aversa, AP Economics Writer
WASHINGTON — Big investment banks took the Federal Reserve up on its first-time offer Thursday to let them borrow Treasury securities, the latest effort to ease a painful credit crisis.
The Federal Reserve auctioned $75 billion worth of Treasury securities. Bidders paid an interest rate of 0.33%. Demand was high. The Fed received bids of $86.1 billion worth of the securities.

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It was the first time the Fed conducted an auction of this kind. The next one will be held April 3.

The program, dubbed the Term Securities Lending Facility, was announced earlier this month by the Fed and is intended as a booster shot for financial institutions and for the troubled mortgage market. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions that started Thursday.

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Big Wall Street investment firms could borrow much-in-demand Treasury securities from the Fed and put up more risky investments, including certain shunned mortgage-backed securities as collateral for the 28-day loans.

The program is designed to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities have driven up mortgage rates, aggravating the housing crisis. Since the Fed's announcement of this new program, rates on some mortgages have eased somewhat.

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