Banks Borrowing From Fed at Record Rate

U.S. banks borrowed from the Federal Reserve at a record rate of $367.8 billion per day last week, according to Reuters. As credit markets remain seized up, banks have increasingly turned to the lender of last resort, the central bank.

The rate of borrowing shatters the previous record of $187.75 per day, set just two weeks ago. As of Wednesday, financial institutions had a record $409.5 billion in outstanding loans from the central bank’s discount borrowing window.

Setting another record, primary credit borrowing averaged $44.46 billion per day last week, compared with $39.36 billion the previous week. Lending to commercial banks rose from $39.3 billion two weeks ago, to $49.5 billion this week.

Investment firms drew in a record $147.7 billion, up from $88.15 billion the previous week. On Wednesday alone, investment banks borrowed $146.6 billion, breaking a record set Sept. 24.

Despite these efforts, the financial markets are still a mess. For all the lifelines thrown into the banking industry, the Fed has still failed to save such sinking giants as American International Group, Bear Stearns, Washington Mutual, Lehman Brothers, Wachovia, Fannie Mae, Freddie Mac and Merrill Lynch, among others. Also recently, the nation’s two remaining investment banks, Goldman Sachs and Morgan Stanley converted themselves into commercial banks to ensure survival through the financial meltdown.

Critics have pointed to these failures as evidence that the Fed’s lending is not working, and if more failures occur it could force taxpayers to foot the bill. Another complaint is the fact that frivolous lending will lead to more risk taking, which will in turn lead to more market turmoil.

"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."

Source Reuters:

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