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Fed lends record amount to banks

By Jeannine Aversa
Associated Press

WASHINGTON Banks borrowed in record amounts from the Federal Reserve's emergency lending facility over the past week, while investment banks drew loans at a brisk – though slightly lower – pace, fresh proof of the credit problems gripping the country.

The Fed's report Thursday said commercial banks averaged a record $75billion in daily borrowing over the past week. The old record – a daily average of $44.5 billion – was set the previous week. Wednesday alone, $98 billion was drawn, an all-time high.

For the week ending Wednesday, investment firms drew $134 billion, down from a record $147.7 billion in the previous week. This category was widened last week to include loans to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch.

The report also showed that over the last week $145.9billion in loans were made to money market mutual funds – via banks – to help the funds, which have been under pressure as skittish investors demand withdrawals.

And, the report showed the Fed has loaned $70.3 billion to insurance giant American International Group. In mid-September, the Fed said it would provide AIG a two-year, $85 billion loan. Wednesday the central bank said it would loan the company an additional $37.8 billion.

Since the Bear Stearns debacle in March, the Fed has taken radical, unprecedented steps to get lending flowing again. It has repeatedly tapped its Depression-era authority to be a lender of last resort not only to financial institutions but also to other types of companies.

Critics worry that the Fed's actions could put billions of taxpayers' dollars at risk.

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