Fed, ECB Free Up Billions of Dollars

WASHINGTON -- The Federal Reserve said Wednesday that it was extending its emergency borrowing program to Wall Street firms and was taking other steps to ease a severe credit crunch that has hobbled the U.S. economy.

On the other side of the Atlantic, the European Central Bank and the Swiss National Bank announced Wednesday that they would make billions of U.S. dollars available to banks still starving for the currency.

The Fed said the program, where investment houses can tap the central bank for a quick source of cash, will now be available through Jan 30. Originally the program, started on March 17, was supposed to last until mid-September.

Another program, where investment firms can temporarily swap more risky investments for super-safe Treasury securities, also will continue through Jan. 30, the Fed said. And, it also will let commercial banks, in a separate program, bid on cash loans that last longer -- for 84 days, besides the 28-day loans now available.

The Fed said it was taking these steps "in light of continued fragile circumstances in financial markets." The Fed said the emergency borrowing program for investment houses and the program that lets investment firms temporarily borrow Treasury securities would be withdrawn should the Fed determine that conditions in financial markets are "no longer unusual and exigent."

The smooth flow of credit is the economy's oxygen. It permits people to finance big-ticket purchases, such as homes and cars, and help businesses expand operations and hire workers. Fallout from a trio of crises -- housing, credit and financial -- have badly bruised the economy. Growth has slowed and companies have cut hundreds of thousands of jobs.

Investment houses were given similar, emergency loan privileges as commercial banks after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy. The situation raised fears that other Wall Street firms might be in jeopardy.

The Fed also said it would let Wall Street firms place bids on an option to borrow the Treasury securities. Up to $50 billion would be made available for this. The Fed did not say when the first auction of this type would be conducted.

The European Central Bank and the Swiss National Bank have informed the Fed that they also would make available to their banks similar 84-day cash loans. To help on this front, the Fed also boosted its credit line with the ECB to $55 billion from $50 billion.

The ECB -- the central bank for the 15 countries that use the euro -- said it would increase the amount of dollars offered to $50 billion in the latest series of operations. The bank will make 84-day loans available starting on Aug. 8 and said operations will continue as long as "needed in view of the prevailing market conditions." Similarly, the Swiss National Bank said it would start making 84-day loans available on Aug. 12.