US banks and money managers borrowed a record amount from the Federal Reserve in the latest week, nearly $188bn a day on average, showing the central bank went to extremes to keep the banking system afloat amid the financial crisis, reports Reuters. The Fed data closed out another day of high anxiety in global money markets. Key measures of funding stress hit record levels on both sides of the Atlantic as nervous market participants awaited developments on Washington’s proposed $700bn financial bailout plan. Fed figures showed Thursday the total amount banks borrowed nearly quadrupled the previous record of $47.97bn per day marked just the week before. The data showing the huge reliance of financial institutions on the Fed came on a day of other extremes within the funding markets. The inter-bank premium for borrowing three-month dollars over anticipated official policy rates, or Overnight Index Swaps, known as the Libor/OIS spread, blew out to 200bp points, while the cost of borrowing euros and sterling also jumped. That dollar Libor/OIS spread was around 164bp on Wednesday, and around 80bp at the start of September.

This entry was posted by Gwen Robinson on Friday, September 26th, 2008 at 5:35 and is filed under Capital markets. Tagged with federal reserve. Edit this entry.