Fed lectures financial houses: Borrow quick at our discount window


Use of Discount Window Urged

By James Politi and Eoin Callan
Financial Times, London
Saturday, August 18, 2007


The top executives of Wall Street's leading commercial and investment banks gathered on an emergency conference call for about 20 minutes on Friday morning to hear a stern message from the Federal Reserve.

Just after lowering the discount rate -- the charge for banks when they borrow money from the government in a pinch -- the US central bank told the financial institutions that they should not be shy about using this "discount window" if they needed it.

"The Fed was very clear to the banks. They basically said we don't want to hear about good credits being turned down," said one person familiar with the matter.

On the call was the top brass of the US banking industry, from Chuck Prince, chief executive of Citigroup, to Jamie Dimon, chief executive of JPMorgan Chase, to Zoe Cruz, co-president of Morgan Stanley, and Stan O'Neal, chief executive of Merrill Lynch.

Representatives of Goldman Sachs, Deutsche Bank, Bank of America, Bear Stearns, and Lehman Brothers, among others, also attended. About half the participants spoke, all broadly supporting the Fed's action, according to a participant.

Banks have been reluctant to use the discount window to borrow money for fear of the damage that might come from revealing their strained finances.

In fact, until Friday's shift, one senior Wall Street lawyer said it was unclear whether regulators looked down on banks that made use of it.

But faced with the credit crisis that has engulfed the global markets in recent weeks, the Fed was trying to erase any ambiguity. In a joint statement following the meeting, the banks said the Fed now "encouraged use of the discount window and recognised such use as a sign of strength."

The call was led by Timothy Geithner, president of the New York Fed, and Donald Kohn, long-serving Fed governor, and hosted by the Clearing House Association, a forum for discussion among owners of the Clearing House, which operates payment services.

Demand for discount rate loans from the Fed has risen only modestly in the last week since the central bank issued a statement on August 10 saying, "As always, the discount window is available as a source of funding."

Total loans outstanding were $264 million (£133 million) on Thursday, compared with $255 million a week ago.

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