Top banks tap Fed discount window

The four largest U.S. banks, led by Citigroup and Bank of America Corp., took the unusual step of borrowing $2 billion directly from the Federal Reserve on Wednesday, as the Fed tries to stabilize tempestuous financial markets by adding money to the banking system.

U.S. shares rose after the move, but financial stocks declined slightly.

Borrowing money directly from the Fed is usually seen as a sign of weakness, but JPMorgan Chase & Co., Bank of America and Wachovia Corp., said they have ample access to funds and made the move for the sake of the financial system. Citigroup, meanwhile, said it borrowed funds for customers; but the bank has issued at least $2.5 billion of corporate bonds this month.

The Federal Reserve on Friday cut the rate at which banks borrow directly from the central bank by a hefty half a percentage point and signaled it was willing to take more dramatic action to cushion the economy from tightening credit.

Timothy Geithner, president of the Federal Reserve Bank of New York, encouraged banks in a call on Friday to borrow from the Fed.

Deutsche Bank late last week borrowed funds from the Fed, the Financial Times reported on Monday.

The Dow Jones industrial average was up 70 points or about half of one percentage point after the announcements, while the Standard & Poor's financial index turned modestly negative, trading down 0.43 percent.