Four big US banks use Fed’s discount window

Analysis

Four large US banks Wednesday said they each borrowed $500 million from the Federal Reserve’s ‘discount window,’ adding liquidity to the credit markets. US stocks rise on hopes of Fed rate cut.

Citigroup Inc., J.P. Morgan Chase & Co., Bank of America Corp. and Wachovia Corp. said they borrowed $500 million apiece. Citigroup said it borrowed the money ‘on behalf of clients.’ The other banks said in a joint statement they borrowed the money ‘to display the effectiveness of the facility.’ “While JPMorgan Chase, Bank of America and Wachovia each have substantial liquidity and the capacity to borrow money elsewhere on more favorable terms, the companies believe it is important at this time to take a leadership role in demonstrating the potential value of the Fed`s primary credit facility and to encourage its use by other financial institutions,” the banks said.

Citigroup said it stood “ready to continue to access the discount window as client needs and market conditions warrant.” The Federal Reserve encouraged banks to borrow from the discount window Friday, the same day it lowered the discount rate, charged on direct Fed loans to banks, to 5.75% from 6.25%. It had established the discount window as a way for the Fed to lend to banks having difficulty raising funds elsewhere. Banks have rarely used the option because it generally carries a stigma, since it is seen as a struggling bank’s last resort, The Wall Street Journal reported.

US stock indexes closed up 1% Wednesday on growing hopes the US Federal Reserve would cut interest rates. The Dow Jones industrial average advanced 145.27 points, or 1.11%, to 13,236.13. The broader Standard & Poor’s 500 Index climbed 16.95 points, or 1.17%, to 1,464.07. On the New York Stock Exchange, 2,704 stocks rose and 661 declined, on volume of 3.3 billion shares traded. The technology-heavy Nasdaq Composite Index added 31.50 points, or 1.25%, to 2,552.80.

In London, the FTSE 100 index closed up 109.90 points, or 1.81%, at 6,196.00. Japan’s Nikkei 225 index finished the day virtually flat, down 0.70 points, or a negligible percentage, at 15,900.64.
The benchmark 10-year US Treasury note fell 13/32, yielding 4.647%, while the 30-year bond was down 7/32, yielding 4.965%.
The US dollar rose to ¥115.09 from ¥114.42 in New York late Tuesday. The euro rose to $1.3537 from $1.3466. (monstersandcritics.com)

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