Though many have dismissed the Federal Reserve’s decision to drop the discount rate from 6.25% to 5.75% as mere window dressing, there are reasons to think otherwise. Citigroup, JPMorgan Chase, Bank of America and Wachovia each borrowed $500 million from the Federal Reserve discount window last week. Average end-of-day Fed credit outstanding for the week ending September 5 measured $1.1 billion, the largest balance loaned out via the discount window since September 2001 and the most since the discount window was reformed in 2003.
Of interest too are the sorts of collateral the Fed accepts nowadays from banks in return for loans. The list reads like a Who’s Who of the investment world. The regulars turn up: US treasuries, government agency debt, and foreign government debt. But the Fed can accept far more than that. FULL ARTICLE