Fed creates another loan fund for investment banks, cuts rate

Section:

Fed Takes New Steps to Ease Crisis

By Jeannine Aversa
Associated Press
via Yahoo News
Sunday, March 16, 2008

http://news.yahoo.com/s/ap/20080316/ap_on_go_ot/fed_credit_crisis;_ylt=A...

WASHINGTON -- The Federal Reserve announced a series of new steps Sunday to help provide relief to a spreading credit crisis that threatens to plunge the economy into recession.

The central bank approved a cut to its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans.

The steps are "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement. "Liquid well-functioning markets are essential for the promotion of economic growth."

The new lending facility will be available to financial institutions on Monday.

It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral will be accepted to back the loans.

The Fed also approved the financing arrangement announced Sunday by JPMorgan Chase & Co. and the Bear Stearns Cos.

The Fed's actions are the latest in a recent string of unconventional steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered.

The "discount" rate cut announced Sunday covers only short-term loans that financial institutions get directly from the Federal Reserve.

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