US Fed pleased with banks' use of new funding sources

The Federal Reserve said Thursday it is encouraged by the reaction of banks to the extraordinary efforts to pump cash into the US economy amid the coronavirus pandemic.

Among a host of measures, the Fed earlier this week made it easier for banks to borrow at very low cost from its "discount window" -- which financial institutions are often reluctant to do for fear of stigma.

The Fed said in a statement it is "encouraged by the notable increase in discount window borrowing this week with banks demonstrating a willingness to use the discount window as a source of funding to support the flow of credit to households and businesses."

The pandemic has had severe impacts on the US economy as businesses are forced to close, revving up demand for cash for companies and individuals to pay their bills.

Bank regulators followed up on the Fed actions by issuing a statement this week urging financial institutions to use the discount window -- which provides funds for up to 90 days at 0.25 percent interest -- to prevent credit in the economy from freezing up.

The central bank has taken several other steps to provide liquidity for the economy, including other forms of short term lending for banks and corporate borrowers as well as ramping up bond purchases, in addition to slashing the benchmark lending rate to zero.