Fed Auctions Another $30B
Banks on Tuesday gobbled up said another $30 billion in short-term loans injected into the banking system by the Federal Reserve, the latest sign of the lack of liquidity for financial institutions.
Sixty-six banks bid $58.4 billion in the Fed's fifth 28-day auction through the term auction facility created in December. The interest rate was 3.01%, vs. 4.67% in December, a reflection of the Fed's aggressive cutting of its fed funds rate to 3% last month.
The Fed created the facility to allow it to lend directly to banks at a time when they are reluctant to lend to each other. Banks can borrow directly from the Fed through the central bank's discount window, but doing so carries a stigma of desperation that many banks try at all costs to avoid. The discount window carries a 3.5% interest rate.
The Fed has injected $130 billion in liquidity via the facility's semi-monthly auctions since December. And judging by recent Fed statistics, banks certainly need the capital.Banks have a legal requirement to have a sufficient amount of money on hand to meet customers' needs. A lack of reserves would mean the bank would have to start turning down customers for loans, which could in turn cause a panic as depositors rush to pull their money out. The Fed does not note which banks are borrowing through the facility. According to the Fed's
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