Fed to banks: pump it up!
NY Fed chief encourages banks to borrow after rate move Fri Aug 17, 2007 6:26PM EDT
By John Parry and Richard Leong
NEW YORK, Aug 17 (Reuters) - Shortly after the Federal Reserve
surprised markets on Friday with a half-point cut in the rate it
charges on loans to banks, the New York Fed president called top
bankers to encourage them to borrow money from the central bank.
The New York Fed confirmed that President Timothy Geithner made the
morning telephone call to top-level executives at a number of
commercial banks and Wall Street firms. The central bank has pumped
more than $90 billion in temporary cash into the banking system since
Thursday Aug. 9.
Participants in the conference call, which included members of the
Clearing House Association, said the Fed actions “would encourage
financial market participants to take steps that would improve
conditions in funding and credit markets.”
The Association is a discussion forum for owners of the Clearing
House, which operates payment services. Its owners comprise major
U.S. commercial and investment banks and some foreign banks,
according to its Web site.
The New York Fed, which conducts open market operations on behalf of
the Fed, occasionally brings big banks together to discuss market
practices. As on Friday, meetings are sometimes held to discuss Fed
operations and market conditions.
The New York Fed president has assembled market participants in the
past to address concerns about financial entities. In the fall of
1998, for example, former New York Fed President William McDonough
encouraged banks and dealers to rescue the hedge fund Long Term
Capital Management.
EASIER TERMS:
On Friday, the New York and San Francisco Feds were two regional
central banks that requested easier terms for banks to borrow from
the Fed via the discount window.
At about 8:15 a.m. (1215 GMT), the Fed said it lowered the discount
rate to 5.75 percent but left its fed funds target rate steady at
5.25 percent.
Shortly after the announcement, Geithner spoke with bank executives
via telephone, a call that lasted about 20 to 25 minutes, according
to a person who was on the call but declined to be identified.
There was no discussion about cutting the Fed’s federal funds rate
target or further easing in the discount window, the person said.
Geithner and Fed Vice Chairman Donald Kohn rallied banks to increase
lending and dispel the stigma of discount window borrowing, the
person said.
“From time to time, there have been questions whether you are looked
down upon if you use the (discount) window,” the person said. “The
Fed wanted to say that ‘We don’t look down on anybody who uses it.
Not only that, we want money flowing.’”
Participants in the New York Fed call included the biggest U.S. banks
and brokers, including Citigroup and Goldman Sachs, and top foreign
lenders like The Bank of Tokyo-Mitsubishi UFJ and UBS AG.
(Additional reporting by Ros Krasny in Chicago and David Lawder in
Washington)