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Bloomberg NewsMay 2 (Bloomberg) -- The Federal Reserve, seeking to prevent a deeper economic slowdown, took another stab at coaxing banks into lending at lower rates.
The Fed boosted its biweekly Term Auction Facility sales of cash to banks by 50 percent to $75 billion and expanded the collateral it takes from bond dealers through loans of Treasury securities. It also raised the amount of dollars it makes available to the European Central Bank and Swiss National Bank through swap lines to a combined $62 billion from $36 billion.
Borrowing costs for banks have risen as much as 0.38 percentage point in the past six weeks, an increase that blunted the impact of the cash injections that began in December. The strains threatened to further impair mortgage markets, worsening an economy where growth has already stalled.
``The world is awash in liquidity, it just isn't reaching the right financial borrowers,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``Today's action from the central banks is another strong dose of medicine that will help cure what ails the credit markets.''
Fed officials also expanded the collateral they accept under the Term Securities Lending Facility to include AAA rated asset- backed investments. About 95 percent of outstanding student-loan securities are AAA, according to the American Securitization Forum. Democrats in Congress had pushed Chairman Ben S. Bernanke to take student-loan bonds on the central bank's balance sheet.
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