U.S. banks primary borrowings from Fed biggest ever

By John Parry

NEW YORK (Reuters) - U.S. banks' direct primary credit borrowing from the Federal Reserve rose to the highest level ever in the latest week, reflecting the growing need of the banking sector to rely on the central bank for cheap funding, analysts said.

Banks primary credit borrowings averaged $16.38 billion per day in the latest week, a record high and up from $13.92 billion the previous week, Federal Reserve data showed on Thursday.

On the day of July 23, banks' primary credit borrowings rose to $17.68 billion, the highest borrowing since September 12th 2001 when banks borrowed $45.5 billion in a single day.

"Who else is going to lend to them?" said Howard Simons, strategist with Bianco Research in Chicago.

"The financial sector, everyone whose business is essentially lending money is now a ward of the state. They could lend to each other but they don't trust each other. They can't raise money in the equity market. There is nowhere else to turn," Simons said.

Banks' overall discount window borrowings averaged $16.51 billion per day in the week ended July 23, up from an average $14.30 billion per day the week before.

Dealers borrowed zero from the Primary Dealer Credit Facility (PDCF) in the latest week, versus $9 million average per day the week before. The PDCF is one of several programs the Fed has introduced to provide cheap financing to financial institutions pinched by the credit crisis.

The portfolio of Bear Stearns assets held by the Fed in holding company Maiden Lane LLC were $29.06 billion as of July 23, compared with $29.02 billion on July 16.