One week into the Federal Reserve's effort to grease the rusty wheels of the U.S. credit system, Wall Street is wondering just who needs the money because there's no line at the window.

Federal Reserve data released late Thursday reveals only a modest increase in direct Fed loans to banks, apart from funds borrowed by five major institutions in what was seen as a symbolic gesture.

Citigroup, JPMorgan Chase, Bank of America, Wachovia and Germany's Deutsche Bank all borrowed from the Fed's discount window in the past week, but all said they did not need the money. The identities of other borrowers is not known. Last week the Fed encouraged banks to borrow at the discount window.

The window is open, but nobody came, said Lawrence Dyer, interest rate strategist at HSBC Securities USA, in New York.

In a surprise move a week ago, the Fed cut the discount rate for loans directly to banks to 5.75 percent from 6.25 percent. The action was an effort to restore liquidity to markets worried about creditworthiness given the losses emanating from securities linked to the U.S. mortgage market.

There is little agreement about why banks are not rushing to the Fed's discount window, where they can get emergency loans.

While the Fed charges above market rate on its direct loans to banks, many banks and investors are fearful of making loans to each other, especially to those with subprime mortgages on their books.

On Thursday, Fed's direct loans to banks averaged $1.541 billion a day in the week ended August 22, the highest level since September 2001. But a big chunk of that activity stems from $2 billion linked to Citigroup, Bank of America, JPMorgan Chase and Wachovia, each of whom borrowed $500 million.

DISCOUNT WINDOW

If we understand the discount rate window operations correctly, we have to conclude that it is not successful, said Andrew Brenner, co-head of structured product and emerging markets at MF Global, in a research note.

But a week's worth of activity is too small a window on which to pass judgment, others contend.

It's too soon to say it's a failure. Maybe people didn't need to borrow from discount window, said Robert Brusca, chief economist at Fact and Opinion Economics in New York. Brusca was also a staff economist at the New York Fed from 1977 to 1983.

One former Fed official downplayed the less than robust level of bank borrowing from the Fed, saying that discount window moves tend to be symbolic in nature, in contrast the open market operations it conducts.

In two weeks, the Fed has injected more than $100 billion in temporary cash through repurchase agreements into the U.S. banking system.

The Fed's (discount rate) move was essentially a morale building exercise to calm the market about credit availability, said William Ford, former president of the Atlanta Fed and an economic and finance professor at the Middle Tennessee State University.

I don't think anyone inside the Fed really expected billions of dollars in new borrowing through the discount window, other than the little bit we've seen, said Ford, who is now based in Murfreesboro, Tennessee.

Still, the Fed is preparing for bank borrowing to increase despite the initial tepid reception to an easier discount window. It said it will not reinvest $5 billion in proceeds next week from maturing Treasury securities in its portfolio, following the same move this week.

One sign that the Fed itself is not happy with the pace of activity is that it has begun accepting a wider range of collateral to back the loans. Fed officials affirmed Friday that the central bank will now accept asset-backed commercial paper, ultra-short term corporate IOUs backed by assets ranging from credit card receivables to mortgages.

The commercial paper market, a vital conduit of financing for U.S. companies, has shrunk dramatically in the past two weeks because of worries that assets in the ABCP collateral pool included tainted subprime mortgages.

Germany Jpmorgan chase Wachovia