Nov 17, 2009 8:25 am US/Pacific
Fed Reduces Emergency Loans For Banks
WASHINGTON (AP) ―
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The Federal Reserve announced Tuesday that it will reduce the length of loans banks can draw from its emergency lending program since the worst of the financial crisis has passed. (File)
AP
The Federal Reserve announced Tuesday that it will reduce the length of loans banks can draw from its emergency lending program since the worst of the financial crisis has passed.
The maximum loan amount will be cut to 28 days, from 90 days, starting on Jan. 14, the Fed said.
It took the action "in light of the continued improvement in financial conditions," the central bank said.
During the financial crisis, the Fed had lengthened the maximum maturity of such emergency loans. The move was aimed at breaking through credit clogs and getting banks to lend more freely to businesses and households.
Before the crisis, cash-strapped banks would draw overnight loans from the Fed's emergency loan program, known as the "discount window." They pay just 0.50 percent interest on the loans.
Despite prodding from Congress, the Fed does not release the identities of banks that draw loans from its emergency facility. The Fed has argued that doing so could prompt a run on a bank, defeating the purpose of the program.
For years, the Fed has acted as the country's "lender of last resort," meaning banks can turn to the Fed for short-term loans when they can't get the money elsewhere. Banks have to pledge collateral for the Fed loans.
The Fed's objective is to help banks get over any trouble spots so that they can continue to make loans. That's critical to the health of the financial system and to the economy.
(© 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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