Fed Takes New Steps on Credit Crisis

WASHINGTON -- The Federal Reserve said Friday it is taking bigger steps to ease the nation's credit crisis, including increasing the amount of money it will auction to banks this month to $100 billion, The Associated Press reported.

The Federal Reserve said it will raise its planned March 10 and March 24 auctions to $50 billion each, up from the $30 billion limits it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers, the AP reported.

Fed officials said in a statement they planned to continue the auctions for at least six months, and would move to even larger auction amounts if needed, tbhe AP reported.

The Fed also said that starting Friday it will enlarge another series of transactions, called repurchase agreements, so that they will pump a net total of $100 billion into the financial system at any one time, the AP reported.

The news comes as the The Wall Street Journal reported Friday citing people familiar with the situation, that Washington Mutual Inc. and other battered lenders have approached private-equity firms and sovereign-wealth funds about possible cash infusions,

It isn't clear if the discussions will result in a new round of infusions beyond those already made at the likes of Citigroup Inc. and Merrill Lynch & Co., each of which has raised billions of dollars to stabilize their balance sheets. Much of that money came from government investment funds in the Middle East and Asia, the paper reported.

But concern that mounting losses on loans and mortgage-related investments could threaten the health of the U.S. banking system is spurring regulatory action. In recent weeks, the Federal Reserve and Office of the Comptroller of the Currency have quietly reached out to a handful of banks with informal instructions to seek outside capital, the paper reported.

Seattle-based WaMu, the nation's largest savings-and-loan institution, is one of the biggest lenders looking to line up additional capital, the paper reported citing people familiar with the matter. In the fourth quarter, the thrift, as S&Ls are known, reported a $1.87 billion loss fueled by a sharp increase in its reserve for loan-related losses. A WaMu spokesman declined to comment to the paper.

Regulators are publicly urging even healthy banks to replenish their coffers so that they can keep lending and expanding their businesses if the U.S. economy continues to weaken, the paper reported.

-- NYSSCPA.org News Staff

Posted on 3/7/08