Aug. 22, 2007 10:42 AM NEW YORK – Four major banks said Wednesday they each borrowed $500 million from the Federal Reserve’s discount window, lending weight to its efforts to restore liquidity to tight markets.
Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Wachovia Corp. each stressed they themselves have “substantial liquidity” and the ability to borrow money elsewhere.
In a joint statement, the latter three said they decided to borrow directly from the central bank to demonstrate “the potential value of the Fed’s primary credit facility” and encourage its use by other banks. It was not clear if other banks had also decided to borrow from the Fed.
On Friday, the Fed took the dramatic step of cutting its discount rate on loans to banks, to 5.75 percent from 6.25 percent, in an attempt to alleviate Wall Street’s credit crunch. It also made technical changes to make it easier for banks to get discount loans, including extending the credit period to up to 30 days.
Tapping the discount window had previously been seen as a last resort for banks in trouble, a perception the Fed sought to eliminate.
Citigroup was the first to announce its decision to borrow the money, “on behalf of its clients” at Citibank.
“Citi is pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients,” the company said. “Citibank stands ready to continue to access the discount window as client needs and market conditions warrant.”
It was followed minutes later by the three other banks.
“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,” their statement said. The three added that they hoped their actions would “promote broad acceptance of the use of the facility.”