WASHINGTON - The Federal Reserve, working to combat the effects of a severe credit crunch, said yesterday that it had auctioned an additional $20 billion to commercial banks at an interest rate of 4.67 percent.
Fed officials pledged to continue with the auctions - in essence, loans going to the bidders willing to pay the highest interest rates - as long as necessary.
The central bank said it had received bids for $57.7 billion worth of loans, nearly three times the amount being offered, indicating continued strong interest in the Fed's new approach to providing money to cash-strapped banks.
It was the second of four scheduled auctions. The first auction, Monday, of $20 billion, resulted in loans at 4.65 percent. Ninety-three bidders sought $63.6 billion at the first auction. The second auction had 73 bidders.
Two more auctions will occur in early January. In a statement yesterday, the central bank said it would continue with further auctions "for as long as necessary to address elevated pressures in short-term-funding markets."
The Fed announced the new auction process last week in a coordinated action with central banks around the world trying to address a global credit crunch.
"This is a good start, but more needs to be done because segments of the credit markets are still locked up," David Wyss, chief economist at Standard & Poor's in New York, said.