- The Washington Times - Saturday, January 5, 2008

ASSOCIATED PRESS

The Federal Reserve announced yesterday it is increasing the amount of money available to banks through the new auction process it created to ease the nation’s severe credit squeeze. The Fed again pledged to continue the auctions “for as long as necessary.”

The Fed said that it will increase the amount offered at each of the next two auctions from $20 billion to $30 billion, a 50 percent jump. Those two auctions will be Jan. 14 and Jan. 28.

The Fed announcement indicated that the auction process it began last month has been successful in providing a source of loans for cash-strapped banks.

The first two auctions offered $20 billion each and attracted bids for about three times that amount.

Federal Reserve Chairman Ben S. Bernanke and his colleagues decided to try the auction approach because their efforts to inject funds into the banking system through direct loans to banks had not been as successful as hoped.

Banks were hesitant to borrow money directly from the Fed, using a process known as the Fed’s discount window, for fear that it would carry a stigma that would raise doubts among investors about the soundness of institutions using the discount window.

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