The Federal Reserve moved further last week to make it easier for banks to meet temporary shortages of money by liberalizing its rules on borrowing from the Fed discount window.

The Fed said the changes are permanent and not specifically designed to deal with possible computer problems related to the year-2000 date switch.

The Fed will now accept certificates of deposit, deposit notes, commercial paper, and other debt instruments issued by banks or their affiliates, provided they carry investment-grade ratings. It will also accept AAA-rated collateralized bond loan obligations, and AAA-rated commercial mortgage-backed securities as collateral on its bank borrowings.

"We've always had the discretion to reevaluate the collateral we take on discount window borrowings, and from time to time we make changes when demand calls for it," said Douglas Tillett, a spokesman for the New York Fed. "We are just trying to anticipate the unknown and make it easier for some of our institutions" to borrow money from the Fed.

The Fed said it also expects to approve investment-grade foreign sovereign debt as collateral for discount window borrowings. -- Bloomberg News

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