Big Banks Go to Discount Window
- From: Capitalist Pig <cochon-capitaliste@xxxxxxxxxxx>
- Date: Wed, 22 Aug 2007 14:15:23 -0700
Citi, Bank of America, J.P. Morgan
And Wachovia Each Borrow $500M
By KEVIN KINGSBURY
wall Street Journal August 22, 2007 3:15 p.m.
Four major U.S. banks said they have each borrowed $500 million from
the Federal Reserve's discount window, becoming the first to say they
have taken advantage of the central bank's latest attempt to add
liquidity to the credit markets.
Citigroup Inc. said it borrowed "on behalf of clients." Minutes later,
J.P. Morgan Chase & Co., Bank of America Corp. and Wachovia Corp.
issued a joint press release saying they also borrowed $500 million
each.
The trio said while it has "substantial liquidity and the capacity to
borrow money elsewhere on more favorable terms, the companies believe
it is important at this time to take a leadership role in
demonstrating the potential value of the Fed's primary credit facility
and to encourage its use by other financial institutions."
Citigroup noted it "stands ready to continue to access the discount
window as client needs and market conditions warrant. Citi is pleased
to inject liquidity into the financial system during times of market
stress and to support creditworthy clients."
The Federal Reserve on Friday took highly unusual steps to open up the
supply of cash to the nation's banks at a time when some of the safest
financial markets are seizing up and threatening the broader economic
outlook.
The central bank lowered the discount rate, charged on direct Fed
loans to banks, to 5.75% from 6.25%, and took steps to encourage banks
to borrow from what is known as its discount window, such as
lengthening the term of such loans to as long as 30 days from the
current one day. At the same time, Fed officials actively invited more
borrowing from the central bank.
The discount window was originally established as a way for the Fed to
lend to banks having difficulty raising funds elsewhere. But the
option is little used because it generally carries a stigma, since it
is seen as a struggling bank's last resort. Officials hoped their
latest moves will encourage more borrowing, injecting more liquidity
into the system.
Last week, the commercial-paper market, a critical source of short-
term funding for an array of companies, was becoming inaccessible for
a growing number of companies. Most notably, Countrywide Financial
Corp. last week tapped an $11.5 billion credit line because it was
facing funding difficulties.
The Wall Street Journal reported Tuesday that Deutsche Bank AG was the
only bank that had said it borrowed from the discount window, citing
people familiar with the German bank.
.
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