Scrambling to pre-empt further potentially catastrophic disruptions to the world's financial system, the Federal Reserve cut its discount lending rate by one-fourth of a percentage point on Sunday, and announced another new lending program to prop up investment banks.

At the same time, the Fed also expedited J.P. Morgan's takeover of Bear Stearns by agreeing to fund up to $30 billion of Bear Stearns' less-liquid assets.

The cut in the discount rate was designed to increase liquidity for commercial banks and thrifts. The additional lending program was aimed at shoring up investment banks by letting them borrow more freely from the Fed using as collateral securities backed by mortgages, credit-card receivables, and other consumer debt.

Both programs will be available first thing Monday morning.

Facilitating the Bear Stearns takeover was designed to remove even the possibility of a chain reaction of bank failures should Bear Stearns default on its obligations to other institutions.

"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve chairman Ben Bernanke said on a conference call Sunday evening.

In its statement, the Fed said that the new lending program for investment banks "will be in place for at least six months and may be extended as conditions warrant."

"Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities," the central bank added. "The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York."

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