Earlier this month, it was reported that banks have cut back on the amount borrowed from the Federal Reserve’s emergency loan fund. Experts are saying that this is a sign that credit problems in the country are also decreasing.
$14.6 billion is the latest weekly average of commercial banks’ borrowing amount. The number has obviously decreased from the previous average of $14.8 billion.
Now that economic conditions are slowly recovering, banks are now cutting back their use of the discount loan window offered by the Fed’s emergency fund, perhaps because consumers are now in need of fewer emergency cash loans. Back in 2008, when the financial crisis in the country was at its peak, daily borrowings from the Federal Reserve reached up to $110 billion. With the emergency loan funds, banks are entitled to pay as little as 0.50 percent in interest.
There has also been a report showing that the value of the Fed’s assets has also decreased. One of these assets is AIG’s mortgage securities. However, the Fed’s Bear Stearns assets have seen an increase in value.
Despite the fact that commercial banks are now borrowing less from the Federal Reserve, the Fed’s lending activities have still totaled a weekly $2.23 trillion which is more than twice the amount of its lending average before the economic crisis.
Reports are saying that this increase is due to another project of the Fed’s that is aiming to lower mortgage rates and extending assistance to the housing market. In fact, the Fed has just finished purchasing more than a trillion dollars’ worth of mortgage securities from real estate giants Freddie Mac and Fannie Mae. The transaction is expected to be completed by the end of March.
The chairman of the Federal Reserve, Ben Bernanke, is also in the process of laying out a plan for the stimulus money produced during the economic crisis.