US investment banks borrow $2bn from Fed

23 August 2007

America's four leading investment banks have borrowed $2 billion directly from the Federal Reserve.

Citigroup, Bank of America (BoA), JP Morgan and Wachovia made the move five days after the state bank cut its rate and relaxed its collateral requirements, in a bid to inject money into the financial system and return stability to the markets.
The banks' move is regarded as unorthodox by analysts, since borrowing from the Fed has traditionally been regarded as a sign of weakness undertaken by beleaguered financial institutions.

However, statements from BoA, JP Morgan and Wachovia stressed that they were able to borrow money from other sources but had opted for the Fed for the benefit of the financial system.

Meanwhile, Citigroup said that it made taken out the loan for customers.
Ganesh Rathnam, a bank analyst with Morningstar, told cnnmoney.com: "This is a pretty uncommon move, because normally there's a stigma attached to it. This is largely a symbolic gesture in support of the Fed.

"They're acting as the Fed's conduit to ensure there's liquidity in the marketplace. And this makes it so it won't look as bad for other banks to borrow from the Fed if they're in need."

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