Citigroup, Bank of America and other top banks took the rare step of borrowing $2 billion from the U.S. Federal Reserve on Wednesday, in a bid to reassure markets and remove the stigma associated with getting financing from the central bank, Reteurs reports.
U.S. shares rose after the move, as the banks’ moves signaled that battered credit markets may start to heal, though bank stocks were mixed amid lingering concern about mortgages.
Borrowing money directly from the Fed has historically been seen as a sign of weakness, but Bank of America, JPMorgan Chase & Co, and Wachovia Corp said they did it for the sake of the financial system. All four banks emphasised they have access to other, cheaper funds.
With the four largest U.S. having banks having borrowed from the Fed through the central bank’s discount window, others may be more willing to follow, analysts said.
“The psychology is, if a bank needs to borrow from the discount window, and they think there’s a stigma attached to it, they can say, ‘Citi has done it, too’,” says Robert Albertson, chief strategist at Sandler O’Neill in New York.