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Fed auctions $30 billion to banks to combat credit crisis, additional auctions expected

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    WASHINGTON — The Federal Reserve, working to combat the effects of a serious credit crisis, said Tuesday it had auctioned $30 billion in funds to commercial banks at an interest rate of 3.95 percent.
    It marked the third in a series of innovative auctions the Fed began last month as a way to provide cash-strapped banks with the reserves they need. The hope is that the increase in resources will keep banks lending to consumers and businesses and prevent the credit turmoil that hit in August from pushing the country into a recession.
    There are indications the Fed’s efforts are having an impact. The 3.95 percent interest rate was the lowest of any of the three auctions it has held. The other two auctions saw rates of 4.65 percent and 4.67 percent.
    Last week, Federal Reserve Chairman Ben Bernanke said the auctions so far have been successful and he indicated that they would continue for as long as they were needed. He said that these auctions might become ‘‘a useful permanent addition to the Fed’s tool box’’ of strategies it can employ at times when the credit markets have seized up.
    Bernanke, in a Washington speech, said that before the new auctions are made permanent, the Fed would seek public comment on how they should be designed so that they can be best used by financial institutions.
    There is one more auction scheduled for Jan. 28 but the Fed has already said it will announce later this month details of auctions it expects to hold in February.
    The new auction process was unveiled by the Fed in mid-December in a coordinated action with other central banks around the world trying to address a global credit crunch.
    The Fed decided to try the new process because their efforts to inject funds into the banking system through the Fed’s discount window, which makes loans to banks, had proven less successful than Fed officials had hoped.
    Many banks had avoided using the discount window out of concern that investors would see the move as an indication of underlying problems at their financial institutions.
    The auction process was developed as an alternative way to get money into the banking system with the hopes that it would not carry the perceived stigma of the discount window.

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