WASHINGTON - The Federal Reserve yesterday announced a novel approach to injecting money into the banking system.
The Fed said it would conduct two auctions next week at which banks can bid for up to $40 billion in loans, money to bolster their own reserves. It was the Fed's biggest effort to inject liquidity into the banking system since 9/11.
The hope is that the extra funds will spur increased lending on the part of the banks and combat a serious credit crunch that has made loans harder to obtain for many businesses and consumers.
The Fed linked the new auction process to an announcement that it was extending a line of credit in dollars to foreign banks. *