updated 5/29/2008 6:23:24 PM ET 2008-05-29T22:23:24

The Federal Reserve’s emergency loans to banks climbed to the highest level on record even as Wall Street investment companies scaled back their borrowing.

Major Market Indices

The investment houses were given similar loan privileges as the banks in March after a run on Bear Stearns pushed the nation’s fifth-largest investment bank to the brink of bankruptcy and raised fears that other Wall Street firms might be in jeopardy.

A Fed report Thursday said the investment companies averaged $12.3 billion in daily borrowing over the past week, down from $14.2 billion the previous week.

Banks stepped up their borrowing, according to the Fed report. They averaged $15.95 billion in daily borrowing for the week ending May 28, compared with $13.5 billion for the previous week, and the total was a record. The previous high of $14.4 billion came in the week ending May 14.

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

In the broadest use of the central bank’s lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans. The program will continue for at least six months. Commercial banks and investment companies now pay 2.25 percent in interest for the loans.

The Fed also announced Thursday it will make a fresh batch of short-term cash loans available to banks as part of an effort to ease stressed credit markets.

The Fed said it will conduct three auctions in June; each will offer $75 billion in short-term cash loans. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.

The new round of auctions will be conducted on June 2, June 16 and June 30.

As part of efforts to relieve credit strains, the Fed auctioned $16.4 billion in Treasury securities to investment companies Thursday.

The latest auction drew bids for less than the $25 billion available. That could be a sign of some improvements in credit conditions.

In exchange for the 28-day loans of Treasury securities, bidding companies can put up as collateral more risky investments. These include certain mortgage-backed securities and bonds secured by federally guaranteed student loans.

The auction program, which began March 27, is intended to make investment companies more inclined to lend to each other. A second goal is providing relief to the distressed market for mortgage-linked securities and for student loans.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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