Filed under: Federal Reserve
In the face of daily headlines about just how strapped the banks are for cash in the wake of massive and continuing subprime related writedowns, we finally get some news that the worst may be over.
According to the Wall Street Journal [subscription required], “The results of the Federal Reserve’s latest auction of loans to commercial banks suggests that the banks’ need for money is growing less urgent.” The Fed saw the difference between the minimum bid rate and the accepted rate in its auction narrow.
A month ago, banks were jumping at the Fed’s loan auction, bidding for over $60 billion in loans, although the Fed only lent a third of that amount.
That’s good news for shareholders in banks: The worst of the writedowns may be through, and the banks may not need to raise more cash by selling themselves off to foreign investors at firesale prices.
But stability for the banks and less need of cash may make the Fed less likely to continue to slash interest rates.
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