Investment firms get less from Fed

Emergency funds borrowing drops for 3rd straight week

WASHINGTON —Big Wall Street investment companies are pulling back on their borrowing from the Federal Reserve's emergency lending program, a sign that credit conditions may be improving a bit.

A Federal Reserve report Thursday said those firms averaged $22.6 billion in daily borrowing over the past week. That compares with $24.8 billion the previous week and marked the third straight week in which investment firms borrowed less from the central bank.

The program, which began March 17, is one of several extraordinary actions the Fed has taken to limit the damage from a trio of crises: housing, credit and financial.

After the sudden crash of Bear Stearns, the nation's fifth-largest investment bank, fears grew that others might be in jeopardy, given major stresses in credit and financial markets.

Scrambling to avert a market meltdown, Fed Chairman Ben Bernanke and his colleagues, in the broadest use of the central bank's lending authority since the 1930s, agreed last month to temporarily let investment firms obtain emergency financing from the Fed, a privilege previously granted only to commercial banks.

The program, similar to one the Fed has long had for commercial banks, will continue for at least six months. It gives investment firms a place to go for overnight loans. Commercial banks and investment companies pay 2.5 percent in interest on the loans.

Banks, meanwhile, averaged $10.7 billion in daily borrowing for the week ended April 23 compared with $7.8 billion the previous week.

The identities of commercial banks and investment houses are not released.

As part of the effort to relieve credit strains, the Fed auctioned $59.46 billion in super-safe Treasury securities to investment firms Thursday.

The auction — the fifth of its kind — fetched bids totaling less than the $75 billion worth of securities the Fed was making available. That could suggest that demand for Treasuries may be moderating a bit, which might be viewed as a sign of some improvement in credit conditions, analysts said.

"Although the $59.5 billion sold is still a sizable amount, it does suggest that liquidity strains could be easing," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

In exchange for the 28-day loan of Treasury securities, bidding firms can put up riskier investments as collateral, including certain mortgage-backed securities that have fallen into disfavor with investors.

In the five auctions held so far, the Fed has provided nearly $218.41 billion worth of the Treasury securities to investment firms. The program began March 27.