WASHINGTON — The Federal Reserve Board's purchases of commercial paper increased 5.7% during the past week, to $256.9 billion on Wednesday.
Total lending through the Fed's discount window dropped 8.8% from a week earlier, to $316.1 billion on Wednesday. That drop is partially due to a pullback by traditional banks, whose borrowings totaled $99.2 billion, down 8.6% from a week earlier.
But for the first time in six weeks, the Fed lent money to weak financial institutions. The central bank distributed $106 million in the form of secondary credit. The last time the central bank made such loans was Sept. 25, and the total was $19 million.
With the Fed and the Treasury Department launching a new bailout for embattled insurance giant American International Inc., lending to the company through the old facilities barely budged. It borrowed $83.6 billion of its former $123 billion loan, up from $81.2 billion a week earlier.
The Fed announced on Monday that it is cutting the original loan to $60 billion while lowering the interest rate and lengthening the maturity. The central bank said it would put more than $50 billion into two limited liability corporations to buy residential mortgage backed securities and collateralized debt obligations. These new facilities were not reported on the Fed’s balance sheet this week.
The Treasury Department also took a $40 billion equity stake in AIG as part of the renegotiated bailout.
Meanwhile, discount window lending against asset-backed commercial paper held by money market mutual funds dropped 10% during the past week, to $76.5 billion on Wednesday. Lending to investment banks was off 20.9%, to $56.7 billion.
Most of the discount window loans -- $182.7 billion - will mature within 15 days. Another $63.1 billion will come due between 16 to 90 days, and $63.4 billion will be repaid within one to five years. The remaining $6.8 billion will mature in 91 days to one year.
The Fed's balance sheet continued to grow to support the demand for its liquidity programs. Total assets totaled $2.2 trillion on Wednesday, a 6.7% jump from a week earlier.
The central bank has been able to grow its balance sheet by luring financial institutions to hold more reserves at the Fed. Reserves grew 18% in the past week, to $594.4 billion.