March 20 (Bloomberg) -- The Federal Reserve, in its first extension of credit to non-banks since the Great Depression, lent $28.8 billion as of yesterday to the biggest securities firms to try to stabilize capital markets.
In a separate announcement, the Fed expanded collateral eligible for its first auction of Treasuries March 27 to include bundled mortgage debt and securities linked to commercial real- estate loans. The value of the sale was set at $75 billion, part of a $200 billion facility unveiled last week.
The auctions and Wall Street's new loan facility are Fed Chairman Ben S. Bernanke's answer to a credit squeeze that's eroded U.S. economic growth and forced Bear Stearns Cos. to sell for $2 a share to JPMorgan Chase & Co. The recipients of the Fed's credit are getting cash and Treasury notes in exchange for securities tied to mortgages and other distressed debt.
``The Fed's pulling out all the stops here to add liquidity,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``All these things are an attempt to bring down financing costs.''
The central bank's Primary Dealer Credit Facility, announced March 16, allows Wall Street banks to borrow money overnight at a 2.5 percent interest rate, the same charged to commercial banks. The Fed bypassed its own emergency-lending policies and used broader authority in the Federal Reserve Act to give both kinds of companies the same borrowing costs.
Six Months
The central bank said the loans will be available for at least six months. The Fed's decision to be lender of last resort to the 20 primary dealers of government debt came two days after the Fed provided emergency financing to Bear Stearns through JPMorgan.
The Fed's weekly balance sheet released today showed other credit extensions, including loans to facilitate JPMorgan's purchase of Bear Stearns, averaged $5.5 billion a day for the week ended yesterday. The balance ended at zero, according to the Fed's weekly balance sheet.
The zero balance on the Bear Stearns loans signals that the Fed has yet to extend the $30 billion in financing to JPMorgan in exchange for collateral that includes ``less liquid'' Bear assets. The $5.5 billion daily average of the JPMorgan-Bear Stearns loan indicates that a March 14 bridge loan, assuming it was paid off three days later, totaled about $13 billion.
`Show Some Leadership'
Morgan Stanley and Goldman Sachs Group Inc. said yesterday that they borrowed to ``test'' the new lending facility. Lehman Brothers Holdings Inc. Chief Financial Officer Erin Callan said in a Bloomberg Television interview that the firm was using the lending window to ``show some leadership.'' The Fed report today showed that the lending averaged $13.4 billion in the week ended yesterday.
Spokespeople for the 20 primary dealers, which also include Banc of America Securities LLC and Citigroup Global Markets Inc., either declined to comment today, didn't return phone calls or couldn't be reached.
In the Term Securities Lending Facility, the New York Fed bank today altered its plans so it will accept the expanded collateral list, which includes residential mortgage-backed securities, in the first weekly auction instead of the second.
The new eligible collateral for the TSLF includes agency collateralized-mortgage obligations and AAA/Aaa-rated commercial mortgage-backed securities, in addition to similarly rated private-label residential mortgage-backed securities and any collateral normally eligible for Fed open-market operations.
`Give Them to Us'
``What the Fed has said is give them to us, and we'll give you very liquid Treasuries,'' said Paul J. Miller Jr., an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia.
The Fed scheduled the second auction for April 3 and said the central bank's Open Markets Desk will announce the size and the eligible collateral the prior day.
On March 18, the Fed cut the discount rate by 0.75 percentage point to 2.5 percent, two days after reducing it by a quarter point. The more closely watched U.S. benchmark rate, the federal funds rate, was cut this week to 2.25 percent.
From the discount window, direct lending to commercial banks fell by $18 million in the past week to a daily average of $81 million. As of yesterday, the amount of loans outstanding totaled $120 million, the Fed reported in Washington.
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