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Thursday, 18 February 2010

NOW it all starts - Fed raises banks' emergency-loan rate to 0.75 pct; won't directly affect consumer borrowing -

Reading - NOW it all starts - Fed raises banks' emergency-loan rate to 0.75 pct; won't directly affect consumer borrowing -

The Federal Reserve decided Thursday to boost the rate banks pay for emergency loans. The action is part of a broader move to pull back the extraordinary aid it provided to fight the financial crisis.

The move won't directly affect borrowing costs for millions of Americans. But with the worst of the crisis over, it brings the Fed's main crisis lending program closer to normal.

The Fed decided to bump up the so-called "discount" lending rate by one-quarter point to 0.75 percent. The increase takes effect Friday.

The central bank said the action should not be viewed as a signal that it will soon boost interest rates for consumers and businesses. Record-low borrowing costs near zero are still needed to foster the recovery, it said. It repeated its pledge to keep interest rates at "exceptionally low" levels for an "extended period."

The Fed had signaled for weeks that an increase in the discount rate was coming. It portrayed its action Thursday as moving its emergency program for banks closer to normal.

The announcement came after the financial markets had closed Thursday. Investors saw it initially as a prelude to higher borrowing costs across the board.

In after-hours trading, the dollar strengthened on the expectation of higher rates. And yields on two-year Treasury securities rose, and stock futures dipped.

After the sell-off in stock futures, Pimco Managing Director Bill Gross warned investors not to overreact.

"I'd accept the Fed at its word -- that this isn't a change in monetary policy or in the timing of it," he said. "Calmer heads may prevail tomorrow."

T.J. Marta, a market strategist, said he thinks higher interest rates for American borrowers are months away. But "I think one man's normalization is another man's tightening," he said of investors' initial anxiety.

The Fed has kept the target range for its main interest rate -- called the federal funds rate -- at between zero and 0.25 percent since December 2008.

After the Fed's action Thursday, economists said they continued to believe it won't start to boost borrowing costs for Americans until later this year. Some don't think that will happen until next year, given the fragile economic recovery.

Chairman Ben Bernanke last week signaled the Fed is in no rush to boost rates.

When the time does come, Bernanke said the Fed will likely start to tighten credit by raising the rate it pays banks on money they leave at the central bank. Doing so would raise rates tied to commercial banks' prime rate and affect many consumer loans. That would mark a shift away from the federal funds rate, its main lever since the 1980s.

Steering interest rates through the excess reserves rate, now at 0.25 percent, gives the Fed more control over money floating around the financial system. The Fed sets that rate directly; its funds rate is just a target.

"I don't think the Fed funds rate will increase until 2011," Gross said.

The economy is growing again, and financial conditions have improved. But unemployment is still near double digits, and demand for loans remains weak. Many ordinary Americans and small businesses have found it difficult to borrow.

When credit virtually shut down starting in 2008, banks that wanted to borrow had nowhere to go except the Fed. Banks can now more easily tap private lending sources than they could then. As a result, the Fed feels more comfortable about boosting the rate banks pay on emergency loans.

Because financial conditions have improved, the Fed also said it will shorten the length of loans drawn from its emergency lending program. It will go back to overnight loans, effective March 18.

Earlier this month, the Fed shut down a handful of programs to help banks and other companies access credit. Like those shutdowns, the action announced Thursday is "intended as a further normalization of the Federal Reserve's lending facilities," the Fed said.

"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or monetary policy," the Fed said.

Banks have been scaling back their use of the Fed's emergency "discount" loan window as conditions have improved. At the peak of the crisis in the fall of 2008, daily borrowing from the discount window reached $110 billion.

Commercial banks averaged $14.3 billion in daily borrowing for the week that ended Wednesday, the Fed said in a weekly report Thursday. That was down from $14.6 billion in average borrowing for the previous week.

Congress has demanded the Fed identify the banks that draw emergency loans. The Fed has resisted. Bernanke and his colleagues have argued that revealing the names of banks that take out the emergency loans could cause a run on the institution.

Created by Congress in 1913 after a series of bank panics, the Fed acts as "lender of last resort" to banks that can't borrow elsewhere. Its actions help stabilize the nation's financial and economic systems. The Fed's decisions on interest rates can affect the ability of both companies and individuals to borrow and spend.

The wind-down of Fed programs earlier this month, most of which had fallen out of use, was little noticed by investors. A bigger impact could be felt by the scheduled shut-down of the Fed's program to buy mortgage securities from Fannie Mae and Freddie Mac. That program is slated to end after next month.

The purchases of mortgage securities have lowered home-loan rates and bolstered the housing market. The Fed has held the door open to extending the program if the economy weakens. Some analysts fear that once the program ends, mortgage rates could rise, hurting the recovery in housing and the overall economy.

Rates on 30-year mortgages averaged 4.93 percent this week, down from 4.97 percent last week, Freddie Macreported. Last year, rates on those loans averaged 5.04 percent.

David Rosenberg, chief economist at money manager Gluskin Sheff in Toronto, says the Fed's decision to bump up the emergency lending rate for banks is psychological but still packs a punch.

"The Fed is moving toward a new strategy of draining liquidity from the system," he says. "Will the Fed be raising the Fed funds rate soon? No. But what happens when it stops buying mortgages or even starts selling? That could have a material impact on mortgage rates."

Read more -http://finance.yahoo.com/news/Fed-bumps-up-rate-banks-pay-apf-4141548450.html?x=0&.v=3

Officials scramble to explain security breach - man with fake credentials within 12 rows of U.S. VP Joe Biden -

Reading - Officials scramble to explain security breach - man with fake credentials within 12 rows of U.S. VP Joe Biden -

Nikki Yanofskyv had just finished singing O Canada at the opening ceremonies of the Winter Olympics when a man believed to be mentally unstable with crude, fake credentials approached within 12 rows of U.S. Vice-President Joe Biden.

Two plainclothes Mounties stopped the 48-year-old just as he stepped into the high-security area reserved for dignitaries at B.C. Place. The officers had spotted him earlier, coming down the stairs as people were rushing to their seats for the opening ceremonies. He did not seem to fit in with the crowd of well-heeled ticket holders.

They approached him and immediately realized that he did not have proper accreditation. His pass looked like something printed off the Internet that was laminated. He did not have a ticket for the show. The Mounties escorted him to the hallway. He was taken into custody when he tried to run away.

The man, who told police he was infatuated with Mr. Biden, was unarmed and never posed any risk to the U.S. Vice-President at any time, RCMP Assistant Commissioner Bud Mercer told CTV yesterday. The man did not make threats or behave violently.

"His sole purpose was to get near the U.S. Vice-President," Mr. Mercer said. "He had no intent to injure anyone."

As the Olympic athletes were parading into the stadium, the man was turned over to Vancouver police who arrested him for breach of the peace. U.S. Secret Service officers who accompanied Mr. Biden were not involved in the incident and Mr. Biden was probably unaware that something had occurred, police said.

Five days after the security breach, officials from the Vancouver Organizing Committee and from the police were scrambling to explain how a person believed to be mentally unstable managed to slip through VANOC's screening procedures and challenge the Olympics' $900-million security net.
Officials from the integrated security forces said they were responsible for checking bags and monitoring for security threats as ticket holders go through the metal detectors. It was up to VANOC to screen concert-goers for their credentials and tickets, police said, adding that their $900-million security budget did not include the cost of VANOC screening people.
However VANOC insisted everything had worked well.

Adam Gray, vice-president of security integration for VANOC, said last night in a prepared statement the security system at B.C. Place during the opening ceremonies had "worked effectively."

He did not say how the man with fake credentials managed to enter B.C. Place. However he confirmed that officers screened the man for prohibited items, such as weapons, and none were found. The security authorities forces subsequently ensured that the man was stopped, he said.

Despite refusing to acknowledge any mistakes, Mr. Gray said that changes were made to ensure that another breach of security does not happen. "We're confident that the venue security system ensures a safe and secure environment for all," Mr. Gray said.

Earlier, Mr. Gray told CTV that credentials at the Olympic venue would be checked by two or three people. Some would be paid staff responsible for screening ticket holders to ensure they have the appropriate credentials and tickets. Some may have been volunteers, he also said.

"They are well trained, and well supervised, and at the end of the day, this individual was apprehended," Mr. Gray said. "All our systems worked."

In Washington, Secret Service spokesman Max Milien said ``we do not know at this time if the individual had interest in the vice president,'' adding that he was ``not in close proximity'' to Mr. Biden.

Mr. Milien said the Secret Service, which provides the close security screen to the president and other key political figures, both at home and abroad, was expecting to hear further details of the incident from the Mounties.

Assistant Commissioner Mercer said the Secret Service was impressed with the work of the two RCMP officers who were members of the integrated security unit's protective policing section. "They said, job well done, remind me not to mess with you," he said.

Vancouver police released the man from custody later that evening but he was required to go for a mental health assessment. Neither the RCMP nor Vancouver police would release his name.
With a report from Paul Koring in Washington

Read more -http://www.ctvolympics.ca/news-centre/newsid=45148.html?cid=rss