America’s four biggest banks, including Citigroup and JPMorgan Chase, have backed the Federal Reserve’s drive to restore stability to the financial system by borrowing $2 billion from its so-called discount window.

The banks, which also include Bank of America and Wachovia, are borrowing $500 million each after the Federal Reserve last week cut the rate charged on “discount window” loans to banks from 6.25 per cent to 5.75 per cent. The move was one of the steps the Fed took on Friday to boost liquidity by encouraging banks to borrow from it. The other measures included extending the term of these loans from one day to 30 days.

Banks traditionally have been reluctant to tap the discount window for fear that it would be seen as a sign of weakness. However, the Fed is keen to remove that stigma and has been lobbying leading banks to use the facility in the hope that smaller financial groups would follow suit.

The four big players that yesterday turned to the Fed emphasised that the action was a mainly symbolic one to help bolster confidence in the financial system as a whole.

Their action came ahead of a separate, confidence-boosting move last night by Bank of America, which came to the aid of Countrywide, America’s biggest mortgage lender, which is battling to avoid a funding crisis.

It emerged that Bank of America is was investing $2 billion in the mortgage group’s preferred stock in a move that will help to prop up its operations. That came after Countrywide said last week that it drew down an $11 billion borrowing facility from a group of 40 banks to underpin its financing.

Citigroup earlier became the first bank publicly to take advantage of the Fed’s loan rate cut. The bank said that it borrowed the money “on behalf of clients” and noted that it “stands ready to continue to access the discount window as client needs and market conditions warrant”.

Minutes later, the other three banks released a joint statement. It said that, while they have “substantial liquidity and the capacity to borrow money elsewhere on more favourable terms, the companies believe it is important at this time to take a leadership role in demonstrating the potential value of the Fed’s primary credit facility and to encourage its use by other financial institutions”.

Deutsche Bank also confirmed late last night that it, too, had tapped the Fed’s discount lending window, although it has not yet been made public how much it borrowed.

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