updated 10/15/2008 2:15:52 PM ET 2008-10-15T18:15:52

Banks and investment firms borrowed in record amounts from the Federal Reserve's emergency lending facility over the past week, providing fresh evidence of the credit stresses squeezing the country.

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The Fed's report released Thursday said commercial banks averaged a record $44.5 billion in daily borrowing over the past week. That compared with a daily average of $39.36 billion in the previous week. On Wednesday alone, banks borrowed a record $49.5 billion, surpassing the previous high that came one day after the Sept. 11, 2001, terror attacks.

For the week ending Wednesday, investment firms drew a record $147.7 billion. That was up significantly from $88.15 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch. On Wednesday alone, investment firms borrowed a record $146.6 billion, breaking the previous record set on Sept. 24.

The Fed report also showed that $122.1 billion worth of loans were made to money market mutual funds — via banks — to help the funds, which have been under pressure as skittish investors demand withdrawals.

And, the report showed that the Fed has loaned $61.3 billion to insurance giant American International Group. In mid-September, the Fed said it would provide the troubled company a two-year, $85 billion loan.

The report comes as Washington policymakers battle the worst financial crisis since the stock market crash of 1929.

Fed Chairman Ben Bernanke has urged quick action by Congress on a $700 billion plan to buy bad assets from banks and other institutions to shore up the financial industry. He has warned that failing to do so would let problems fester, pushing the country into a recession and driving unemployment and home foreclosures even higher.

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

Bear Stearns was eventually taken over by JPMorgan Chase & Co. in a deal that involved the Fed's financial backing.

The identities of commercial banks and investment houses that borrow are not released. Commercial banks and investment companies now pay 2.25 percent in interest for the loans.

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 Fed has since extended those loan privileges into next year.

The Fed's expanded lending programs, its involvement in the Bear Stearns rescue and the government's bailout of mortgage finance giants Fannie Mae and Freddie Mac have spurred concerns that taxpayers could be on the hook for billion of dollars. Critics also worry that the actions encourage "moral hazard," where companies take on extra risks because they believe the government will come to their aid.

Separately, as part of efforts to relieve credit strains, the Fed auctioned $25 billion in super-safe Treasury securities to investment companies Thursday. Bids were placed for $49 billion worth of the securities.

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.

All the Fed's extraordinary efforts, however, haven't been able to halt the crisis or prevent a seismic shake-up on Wall Street. In recent weeks, Lehman Brothers, the country's fourth-largest investment bank, filed for bankruptcy protection. A weakened Merrill Lynch, deciding it couldn't go it alone anymore, found help in the arms of Bank of America. AIG was thrown a financial lifeline. And, the last two investment houses — Goldman Sachs and Morgan Stanley — decided to convert themselves into commercial banks to better weather the financial storms.

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

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