Banks Not Eager to Borrow at Discount Window

U.S. banks are making but slight use of the recently lowered rate at the discount window, according to Federal Reserve data released Thursday. Two weeks ago, the Fed cut the discount rate to 5.75% and extended loan periods from one day to 30 days. Banks can still borrow among themselves, however, at a rate of 5.25%. Primary credit borrowing at the window averaged $1.3 billion per day this week, up from an average of $1.2 billion last week. On Wednesday, though, primary credits totaled $1.1 billion, down from $2 billion a week earlier. Last week, Citigroup, JPMorgan, Bank of America and Wachovia each borrowed $500 million at the window in a show of support for the Fed's move. The data just released indicate that little to no new borrowing has occurred since. "There are very few people in the money markets that I talk to who think it is providing any relief beyond psychological relief," said Christopher Low, chief economist at FTN Financial in New York. "It is too expensive. If a bank has decent credit, they can get a much lower rate in the market."

Sources: Wall Street Journal, Bloomberg, MarketWatch
Commentary: Major U.S. Banks Step Up to Discount Window • The Fed's Discount Marketing: Window-Dressing for More Bad News
Stocks/ETFs to watch: JPM, C, BAC, DB, WB. ETFs: FDL, XLF, RKH, KBE

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