Credit Woes Ease and Banks Borrow Less from Federal Reserve

An article by Punit

The Federal Reserve’s emergency lending program has seen less money borrowed from it in the past week as banks got less money on the easing of credit problems in the country. This spells good news for the economy and has many investors thinking that better times may be here sooner.

Banks Have to Borrow Less = more Liquidity in the market

Banks over this past week borrowed less money from the Federal Reserve’s emergency lending program and that has many investors thinking that credit problems may be lessening for the country. According to the Federal Reserve, banks borrowed $7.66 billion last week, which is a decrease of $10.75 billion from the previous week. A $3 billion drop is pretty significant, and is a sign of a better economy ahead.

Financial Situation in US improves

As the financial situation of the country has improved, banks have been issuing fewer discount loans. During the fall of 2008, when the financial crisis was at its worst, daily borrowing by backs was topping $110 billion. Many banks found that their typical sources of credit were completely frozen, which made it very difficult for them to be able issue credit to their customers.

One reason that the emergency loan program from the Federal Reserve is so popular is that banks pay a miniscule .75 percent of interest on the loans.

As a result of less borrowing, the Federal Reserve has been ending various support programs for the economy. Last week, the Federal Reserve shut down an economic-support program that provided lowered mortgage rates. Another program that is shutting down with the Federal Reserve is the program that would help consumers and small businesses get lending during the financial crisis. The program was called the Term Asset-Backed Securities Loan Facility, and it ended on Wednesday. During the past week, the use of the program pushed about $47.3 billion.

The Federal Reserve will keep the program that helps the commercial real estate securities market will not end until the end of June.

Economists are looking at these decisions from the Federal Reserve as reason as to why the economy is doing better. Many experts and investors are therefore getting more confidence in the market and that will help the market in the coming months. With more programs shutting down because their use has been fulfilled, it will be a test to see if banks, consumers and businesses can survive without the economic safety net that the Federal Reserve is providing.

The Federal Reserve announced that it was ending the loan program for banks this week as the amount of borrowing dipped to below 10 percent of what was being borrowed in the fall of 2008. Many consumers and banks are on more sure footing now thanks to the work of the Federal Reserve to keep the American economy going. Hopefully we will continue to see improvement in the market as time goes on in the coming months.

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