Investment and Commercial Banks Tap Discount Window

The Fed's reserve balance sheet release, which I was very excited about, came out and has some surprises.

First, borrowing by investments banks (Table 1) shot up to $59.8 billion as of Wednesday from zero the previous week. Most of that is likely borrowing by Lehman (although it looks like Lehman was able to pay back some earlier lent funds).

Commercial banks also visited the discount window, increasing their borrowing from $23.5 billion last week to $33.4 billion as of Wednesday. The daily average for total discount window borrowing (both PDCF and normal) hit $47.97 billion, a record.

Next, foreign central banks picked up (Table 1A) their buying of Fannie Mae- and Freddie Mac-backed bonds for the first time in nine weeks following the takeover of the two GSEs.

Lastly, loans listed under "other credit extensions" (Table 1), which includes AIG, came in at $28.0 billion. Presumably most, if not all, of that amount is funds lent to AIG.

Despite all of the beggars that came calling, the Fed still has the same level of Treasuries it had last week ($479 billion worth) thanks to an auction by the Treasury Department yesterday which expanded the Fed's balance sheet by $40 billion -- with even more to come. With $200 billion committed to the Term Auction Facility and $85 billion set aside for AIG, the central bank has about $200 billion in Treasuries to play with.