Fed Cuts Bank Discount Rate to Boost Liquidity

Latest step to stem worsening credit crisis and bolster panicky markets
By Neal Colgrass,  Newser Staff
Posted Mar 16, 2008 7:21 PM CDT
Fed Cuts Bank Discount Rate to Boost Liquidity
Federal Reserve Chairman Ben Bernanke speaks at the National Community Reinvestment Coalition annual conference, Friday, March 14, 2008, in Washington.    (AP Photo/Pablo Martinez Monsivais)

The Federal Reserve raced to buck up an anxious financial sector today by cutting its discount rate to banks by a quarter point, to 3.25%, the AP reports. It also created a new lending facility to aid investment banks with short-term loans. The moves are "designed to bolster market liquidity and promote orderly market functioning," the Fed said. "Liquid well-functioning markets are essential for the promotion of economic growth."

The lending facility will be active for a minimum of 6 months and "may be extended as conditions warrant," said the Fed. It will accept a variety of collateral to support the loans. The rate cut comes 2 days ahead of the Fed's monthly meeting and applies only to short-term loans that institutions get from the Fed. (Read more Federal Reserve stories.)

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