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Federal Reserve auctions $75B in loans to aid banks



Published: Wed, August 27, 2008 @ 12:00 a.m.

In the past year, the central bank has taken a number of unconventional steps.

WASHINGTON (AP) — The Federal Reserve has auctioned another $75 billion in loans to help squeezed banks overcome their credit problems.

The central bank released the results of its most recent auction Tuesday. It’s part of an ongoing program started in December that seeks to ease financial turmoil and credit stresses. Those problems — along with the housing slump — have badly bruised the economy.

In the latest auction, commercial banks paid an interest rate of 2.38 percent for the 28-day loans. There were 66 bidders. The Fed received bids for $84.17 billion worth of the loans. The auction was conducted Monday with the results made public Tuesday.

The Fed earlier this month offered the loans for an extended period of 84 days, rather than the customary 28-day period.

The central bank has taken a number of unconventional steps over the past year to help shore up the financial market and relieve credit problems.

In the broadest expansion of its lending powers since the 1930s, the Fed agreed in March to let investment houses draw emergency loans directly from the central bank.

At the time, the Fed feared other investment banks could be in jeopardy after a run on Bear Stearns Cos. pushed it to the brink of bankruptcy. As part of JPMorgan Chase Co.’s takeover of the failing company, the Fed provided a $28.82 billion loan.

In July, the Fed said troubled mortgage giants Fannie Mae and Freddie Mac also could tap the program. For years, such lending privileges were extended only to commercial banks, which are subject to stricter regulatory supervision.

Shares of Fannie and Freddie have rebounded a bit this week after recent concerns over their capital-raising abilities and the prospect of a government bailout have caused both of their stocks to plunge.

The Fed also is letting investment firms swap risky investments for super-safe Treasury securities.

Some critics worry the Fed actions could put taxpayers on the hook for billions of dollars and create a “moral hazard,” where financial companies might feel more inclined to take extra risks in the future because they believe the Fed will ultimately bail them out.


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