Published by Mark
The Federal Reserve is increasing the amount of money available to banks through a new auction process, pledging to continue these auctions as long as necessary to help banks during the credit crunch. There was one auction last week, with a second coming up January 28th. We’re talking about very large amount of money offered at each auction – 30 billion dollars! The idea behind the plan is to provide a source of money for cash-strapped banks so that they can make loans to consumers.
As a bankruptcy attorney in Indiana, I’m always intensely interested in news that can affect people who need to borrow money and those who have already borrowed money. The Federal Reserve, reacting to the slump in housing, rising energy prices, and the mortgage problems in the country, has already reduced the fed funds discount rate, which is the interest rate that the government charges for making direct loans to bank. In fact, the Fed cut that rate three times in the last quarter of 2007 alone. This newer auction strategy is designed to offer further help to banks. The hope is that the banks, in turn, will have a greater supply of cash to offer to the public, making it somewhat easier for businesses and individuals to borrow money and to stay current with their payments on their debts.