Fed provides $20 billion in loans to banks to help them through crisis

WASHINGTON -- The Federal Reserve is providing $20 billion in loans to banks as part of an unprecedented auction process to ease a global credit crisis and make sure financial institutions can keep lending to their customers.

The central bank on Wednesday announced banks' use of a new auction facility that was created to encourage banks to seek cash directly from the Fed to help them overcome credit problems.

The Fed announced that the interest rate on the short-term loans will be 4.65 percent, which is slightly less than the 4.75 percent the Fed charges banks on emergency loans through its "discount" window. Banks have been reluctant to use the Fed's discount window because of the fear that investors will believe they are having trouble getting funds in a normal manner.