Fed auctions $7bn in securities

There are signs that firms are open to lending to each other

The Federal Reserve has auctioned $7bn (£3.6bn) in securities, as part of current moves to boost credit markets.

But the amount auctioned was far less than the $25bn available, which could suggest that lenders are finding alternative ways to secure funds.

The US central bank started a series of auctions last year to help increase liquidity after the credit crunch.

The central bank has been aiming to stop what started as a housing slowdown from turning into wider recession.

The auction on Thursday of Treasury securities for 28 days is the eighth of its kind.

In exchange for the Treasuries, investment firms can get short-term cash loans by swapping their more risky investments, including certain mortgage-backed securities.

Risk management

The hope is that as financial institutions take up the credit being offered by the Federal Reserve, they can then lend more to each other, making it easier for them to lend to consumers.

Banks have been keeping their cash until a fuller picture of the financial damage emerges, in the wake of problems in the housing market.

Individuals who had limited or no credit history - sub-prime borrowers - who took out loans when interest rates were low, then found they could not afford to repay them once rates rose, leading to a surge in defaults.

Separately on Thursday Ben Bernanke, head of the Federal Reserve, said finance firms should improve their ability to detect their exposure to problems, such as those in the mortgage sector.

"Improvements in banks' risk management will provide a more stable financial system by making firms more resilient to shocks," said the banking head while speaking to a conference in Chicago.