Total lending through the Federal Reserve Board's discount window continued to decline in the first week of the year, to $178.3 billion on Wednesday, off 8% from a week earlier.

Traditional borrowing by commercial banks was down 10.8% from a week earlier, to $83.7 billion.

Lending to unhealthy banks in the form of "secondary credit" fell 33.3%, to $10 million.

The Fed said it had extended $39.1 billion by Wednesday through the discount window to support American International Group Inc. The central bank has also created a limited liability corporation through the Federal Reserve Bank of New York that has lent $19.2 billion to AIG, down 1.7% from a week earlier.

Investment bank borrowing fell 8.3%, to $34.3 billion.

Lending against asset-backed commercial paper held by money market mutual funds dropped 11%, to $21.1 billion. The Fed has yet to make loans to another limited liability corporation that will buy unsecured assets held by money markets.

Most of the discount window loans — $116.8 billion — will mature within 15 days. Another $39.1 billion will come due in one to five years while the remaining $22.4 billion will mature within 16 to 90 days.

Separate from the discount window loans, the Fed purchased $334.4 billion of commercial paper by Wednesday, virtually unchanged from a week earlier.

Meanwhile, the New York Fed said it purchased $10.2 billion in mortgage-backed securities from the government-sponsored enterprises: nearly $6.9 billion from Freddie Mac, $2.9 billion from Fannie Mae, and $450 million from the Government National Mortgage Association.

Reversing months of growth, the Fed's balance sheet shrunk 5.5%, to $2.1 trillion. Reserves held at the central bank by financial institutions also fell 1.6%, to $846.1 billion.

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