If commercial and community banks need operating capital,don’t they borrow from the Federal Reserve,at reduced rates,and then loan that capital at market rates.....or am I wrong in my thinking?
So if the Fed operates,where is the credit problem on Main Street?
“So if the Fed operates,where is the credit problem on Main Street?”
That is one source, but so is their own revenue.
And, the Fed may be a little less “giving” at the moment, because it is itself giving up capital to shore up (bail out) various pieces of the financial system.
For some institutions it is, altogether, a bit of a contest between obtaining capital to lend and obtaining capital to shore up book balances to meet regulatory requirements concerning the permitted spread between the value of assets and the value of liabilities (when underlying asset values have declined).
As long as the economy continues to perform reasonably well, revenue in the commercial bank sector will continue to help fund new capital, even if at a reduced rate. If the economy falls precipitously, the revenue fall to commercial banks will add another issue to the contest to raise capital. That contest is what now leads the weakest banks to fail - WaMu, Wachovia. Inside the bigger banks that acquired them, the larger revenue stream may be enough to support the liabilities they took on; particularly considering the fire-sale prices paid for them - little cash in one case, all stock in the other.