Discount Window Lending Soars to Another Record

American Banker
Discount Window Borrowing Hits Another Record
By Steven Sloan
October 3, 2008

WASHINGTON — For the third consecutive week, lending through the Federal Reserve Board's discount window continued to soar, hitting a new record on Wednesday when total borrowing reached $409.5 billion.

The new high underscores the industry's struggle to regain its footing during the past week amid a financial crisis that toppled Washington Mutual Inc. and caused regulators to facilitate the sale of Wachovia Corp.

Much of the lending was concentrated in the Fed's backstop for money market mutual funds and the primary dealer credit facility. The Fed said it distributed $152.1 billion — more than twice the level a week earlier — through a program announced last month that lends against asset backed commercial paper held by the funds.

Meanwhile, borrowing through the primary dealer credit facility, established in March to lend to investment banks, jumped 38.7%, to $146.6 billion. Though major standalone investment banks no longer exist on Wall Street, the facility helps Goldman Sachs and Morgan Stanley, which are now bank holding companies, and the investment bank units of commercial institutions.

Traditional lending in the form of primary credit to commercial banks also reached a new high on Wednesday, when borrowing increased 26%, to $49.5 billion.

The Fed also said American International Group Inc., which the central bank bailed out last month, had tapped $61.3 billion of its $85 billion loan. A week ago, the insurance giant had borrowed $44.6 billion of the loan.

For the first time in three weeks, there was no lending to weak banks in the form of secondary credit and the remaining $42 million was in the form of seasonal credit to support banks in rural or resort regions.

The Fed's loans are carrying increasingly longer maturity terms. While the vast majority — $213.7 billion — will mature within 15 days, $61.3 billion will come due within one to five years. Another $21.3 billion matures between 91 days and one year while the remaining $113.2 billion will be paid within 16 to 90 days.

The Fed continues to expand its balance sheet to accommodate the growing demand at the discount window. Total assets jumped 23.5% in the past week, to $1.5 trillion.