March 19, 2009

Bank stocks soared Wednesday after the Federal Reserve announced plans to buy up to $300 billion of long-term Treasurys, expanding its commitment to pump money into the financial system and encourage lending.The KBW Bank Index, which tracks 24 of the nation's largest banks, surged more than 11 percent following the Fed's announcement at midafternoon.By buying up Treasurys, the government effectively puts downward pressure on rates for all sorts of consumer loans, including mortgages, which can help banks make money by stimulating borrowing.

Lending ground nearly to a halt amid a freeze-up in the financial system, and investors cheered the Fed's latest actions on hopes that they could get people and companies borrowing again.The Fed also said it will buy more mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to help prop up the battered housing market.The central bank will buy an additional $750 billion of these securities, bringing its total purchases of them to $1.25 trillion. The Fed will also nearly double its purchases of debt from Fannie and Freddie to up to $200 billion, in a step intended to keep mortgage rates low.