This is somewhat telling don't you think?
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Citigroup, JPMorgan, Banks Borrow From Fed Window (Update2)
By Erik Schatzker and Christopher Anstey
Aug. 22 (Bloomberg) -- The four largest U.S. banks each borrowed $500 million from the Federal Reserve's discount window on behalf of clients after the central bank cut the interest rate it charges and encouraged lenders to use the facility.
The transactions were ``intended to display the effectiveness'' of the discount window, JPMorgan Chase & Co., Bank of America Corp. and Wachovia Corp. said in a joint statement. Citigroup Inc. said in a separate statement that it ``stands ready to continue to access the discount window as client needs and market conditions warrant.''
The central bank has been seeking help from the nation's largest lenders to alleviate a credit crunch that threatens to slow economic growth and worsen the housing recession. Hours after reducing the discount rate on Aug. 17, New York Fed President Timothy Geithner convened a conference call with bank executives to ask them to tap the facility.
``From the Fed's point of view, liquidity is being provided,'' said John Silvia, chief economist at Charlotte, North Carolina-based Wachovia. ``The banks are going along and showing some support. They are working together. It is a calming influence, absolutely.''
The central bank on Aug. 17 cut the so-called discount rate half a percentage point to 5.75 percent to direct more cash to companies starved for short-term financing. The Fed wants to avoid resorting to an emergency reduction in the benchmark federal funds rate that would ease monetary policy before the scheduled Sept. 18 meeting of policy makers.
Initial Reluctance
Banks were initially reluctant to use the discount window to obtain funds that could be used to finance securities for customers because of the risk that they would wind up owning the securities if clients defaulted, said Dominic Konstam, head of U.S. interest-rate strategy at Credit Suisse in New York.
``That's drawn a lot of ire from the likes of Senator Dodd and presumably'' Fed chairman Ben S. Bernanke, Konstam added. ``Now banks are being told to pass through the benefits to the leveraged community.''
Calvin Mitchell, a spokesman for Geithner, declined to comment.
Christopher Dodd, chairman of the Senate Banking Committee, yesterday met with Bernanke and Treasury Secretary Henry Paulson in Washington. In an interview after the meeting, the Connecticut Democrat said banks should be doing more to bolster confidence in financial markets. Dodd said he sensed Bernanke ``didn't totally disagree.'' |
