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Fed: Strong Demand for Auction

Ninety-three banks bid $61.55 billion for $20 billion in available short-term credit.
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Federal Reserve

on Wednesday reported strong demand for the $20 billion in short-term credit it auctioned through a new facility it created last week, an indication of the tight lending environment even among banks themselves.

Ninety-three banks bid a total of $61.55 billion for the $20 billion in available 28-day credit offered through the Fed's temporary Term Auction Facility, an effort coordinated with partner central banks in Canada, England and Europe. The auction, held Monday, was the first in a series that will inject more than $40 billion in liquidity into the market to free up lending among banks and loosen the ongoing credit squeeze.

The interest rate on the facility, or stop-out rate, was 4.65%, less than the 4.75% rate at the Fed's discount window. Bids at the stop-out rate were at 1.96% and resulting awards were rounded to the nearest $10,000, according to the Fed. Loans will settle Thursday and mature on Jan. 17.

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The stock market received a slight bounce from the news, sending the

Dow Jones Industrial Average

up modestly, before recently pulling back to 13,266.86.

The second auction of up to $20 billion is slated for Thursday, with settlement on Dec. 27. The facility also will hold auctions on Jan. 14 and 28, with the amounts to be determined next month.

The Fed may conduct additional auctions in subsequent months, depending on market conditions, it said.