Banks Will Soon See Cheap Credit Shut Off

Banks have about seven months to go before the faucet of cheap government lending is shut, the Federal Reserve said Thursday.

Banks have been accessing cheap funding from the Fed in exchange for collateral like student loans, auto loans, credit card debt and commercial paper. The liquidity programs launched by the Fed late last year have helped stabilize the markets and allowed banks to boost profitability by borrowing inexpensively to fund new loans in a low-interest rate environment.

Several programs, often referred to by acronyms like TALF or AMLF, helped boost the first-quarter bottom lines for major players like Bank of America (BAC Quote), JPMorgan Chase (JPM Quote), Citigroup (C Quote), Wells Fargo (WFC Quote), as well as smaller banking counterparts. Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote) became bank holding companies, in part to avail themselves of such programs as well. ...