Banks cut emergency borrowing from Fed

WASHINGTON -- Bank borrowing from the Federal Reserve's emergency lending program over the past week fell to the lowest point in more than two years, strong evidence that credit markets are improving.

The Fed said that banks averaged $678 million in borrowing for the week ended Wednesday. That was the lowest borrowing average since an average of $550 million for the week ending March 26, 2008, before the credit crisis struck with full force.

Loans from the central bank's emergency lending program, known as the discount window, had surged to a high of $110 billion a day during the height of the financial crisis in the fall of 2008. At the time, banks found their customary sources of credit frozen.

Before the $678 million average for the week ended on Wednesday, it stood at $4.3 billion for the previous week and had been declining for months.

The Fed has been winding down its special lending programs as financial and economic conditions have been improving.

The largest of these efforts was a $1.25 trillion program to purchase mortgage-backed securities issued by Fannie Mae and Freddie Mac. The goal was to lower mortgage rates and boost the depressed housing market.

The new report showed that those holdings averaged $1.1 trillion for the week ended Wednesday. That was down by $4.4 billion from the previous week.

Some economists have worried that mortgage rates would start rising once the Fed's purchases of mortgage-backed securities had ended.

But Fed officials have stressed that even after new purchases end, the central bank will be holding a sizable portfolio of these types of securities. Those holdings can be expected to provide continued support for the mortgage market.

The European debt crisis has also pushed mortgage rates down in the United States as investors have moved their money into the safety of U.S. assets.

Freddie Mac reported Thursday that the national average for 30-year fixed-rate mortgages ticked up slightly to 4.79 percent this week from 4.78 percent last week, both near the low reached on Freddie Mac records of 4.71 percent last December.