Fed Quietly Loans Billions to US Banks

New program opens floodgates for short-term funds
By Jim O'Neill,  Newser User
Posted Feb 19, 2008 11:10 AM CST
Banks have borrowed $50 billion from the US Treasury recently.   (Getty Images)
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(Newser) – US banks, struggling with liquidity and hesitant to lend to each other in the wake of the subprime crisis, have hit up the Fed for nearly $50 billion, the Financial Times reports. The loans, issued under a 2-month-old program that, one analyst says, lets them "borrow money against all sort of dodgy collateral,” are fueling fears that the banking crisis is deeper than previously believed.

The Fed introduced the Term Auction Facility in December as part of an effort by central banks worldwide to increase temporary funds and calm money markets, reports the London Times. Banks reluctant to use the emergency discount window for fear of sparking liquidity concerns have made the TAF program so popular that the Fed is considering making it permanent.