Fed Auction Draws Strong Interest

--The Federal Reserve's auction of loans, designed to ease strains in credit markets, drew strong interest from banks in its first round. --The Fed yesterday awarded $20 billion in 28-day loans at a rate of 4.65%, after 93 banks submitted about $61.6 billion of bids in the auction, which occurred Monday. The bidders' identities weren't disclosed. --The auction is the first of four that were announced last week by the Fed. The next one is today, and the next two will be early next year. They are part of an effort, coordinated with central banks around the world, to address liquidity concerns. --The rate is just below the 4.75% rate on funds from the Fed's discount window. --Banks were invited by the Fed to submit bids of at least $10 million, with a maximum of $2 billion per institution, at a rate of at least 4.17%. The final rate granted to all banks -- the stop-out rate of 4.65% -- is the highest bid needed to cover the total offer amount. --Market watchers said the final rate was a good middle ground between a lack of interest and desperate borrowing. --"If it were above the discount rate, it might have been because there was a lot of truly distressed borrowing," said Ray Stone of Stone & McCarthy Research Associates. "Coming in below the discount rate suggests these markets are not completely frozen and that this should help." --Time is the only real healer here, giving the markets enough time for price discovery, giving the markets time to identify and quantify all the subprime losses and time for financial institutions to rebuild their capital where necessary," said Lou Crandall, chief economist at Wrightson Associates, a Wall Street research firm.