In mid-December, the Fed said it was creating an auction program that would give banks a new way to get short-term loans from the central bank. Banks have been reluctant to lend to each other because of the global credit crunch, which has crimped lending to individuals and businesses.
The smooth flow of credit is critical to the health of the economy. It allows people to finance big-ticket purchases, such as homes and cars, and helps businesses expand operations and hire workers.