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.
The global credit crisis, which began in the spring with rising defaults on mortgages made to risky, or subprime, borrowers, has made banks reluctant to lend to each other even as the Fed has been lowering its federal funds rate, the interest that banks charge each other for overnight loans.