Banks borrowed in record amounts from the Federal Reserve's emergency lending program over the past week, while investment banks drew loans at a slower pace.
The Fed's report, released Thursday, showed commercial banks averaged a record $111.9 billion in daily borrowing over the past week. That surpassed the old record — a daily average of $105.8 billion — from the prior week.
For the week ending Wednesday, investment firms drew $87.4 billion. That was down from $111.3 billion in the previous week. This category was recently broadened 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.
The Fed report showed that its net holdings of "commercial paper" came to $144.8 billion on Wednesday. The Fed created a first-of-its kind program, which started Monday, to buy mounds of this crucial short-term debt that companies use to pay everyday expenses. The Fed has said that around $1.3 trillion worth of commercial paper would qualify.
The report also said insurance giant American International Group's loan from the Fed dropped to $83.5 billion, from $90.3 billion last Wednesday, as the company repaid some of the money. The Fed has said it would loan a total of $123 billion to the firm.
Squeezed banks and investment firms are borrowing from the Fed because they can't get money elsewhere. Investors have cut them off, moving their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lend it to each other or customers. The lockup in lending has contributed to a sharp slowing in the overall economy.
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 identities of commercial banks and investment houses that borrow are not released. Commercial banks and investment companies now pay 1.25 percent in interest for the emergency loans.
Since the Bear Stearns debacle in March, the Fed has taken a series of unprecedented steps to get lending — the economy's oxygen — flowing more freely again. The central bank has repeatedly tapped its Depression-era authority to be a lender of last resort not only to financial institutions, but also to other types of companies.
Critics worry the Fed's actions could put billions of taxpayers' dollars at risk.