Banks lean on support loans

Several large investment banks have taken advantage of easier lending terms from central banks, aimed at increasing liquidity in the wake of the subprime crisis.

Citigroup, JP Morgan, Bank of America and Wachovia each borrowed $500 million from the Federal Reserve's discount window, announced on August 17. The Fed cut its discount rate by 50 basis points (bp) to 5.75%, and extended term financing to 30 days. All four banks have taken an unspecified amount of term financing.

Three of the banks said that they did not need to use the emergency facility, but were doing so in order to "demonstrate the potential value of the Fed's primary credit facility and to encourage its use by other financial institutions".

Citigroup said that the loan was intended "to inject liquidity into the financial system during times of market stress and to support creditworthy clients".

Barclays reportedly took advantage of a similar action by the Bank of England, borrowing £314 million earlier this week. The bank was charged the emergency rate of 6.75%, 100bp above the base rate.

Deutsche Bank also used the Federal Reserve discount window, on August 17, but has not revealed the amount.

Previously on Risk News: Central banks act again as credit crisis continues