Banks take $2 billion in Fed loans

Citigroup, Bank of America and other top banks took the rare step of borrowing $2 billion from the Federal Reserve on Wednesday in a bid to reassure markets and remove the stigma associated with getting financing from the central bank.

U.S. stock indexes rose as the banks’ moves signaled that battered credit markets may start to heal, though bank stocks were mixed amid lingering concern about mortgages.

Borrowing money directly from the Fed has historically been seen as a sign of weakness, but Citigroup, BofA, JPMorgan Chase & Co. and Wachovia Corp. said they did it for the sake of the financial system.

All four banks emphasized they had access to other, cheaper funds.

With the four largest U.S. banks having borrowed $500 million each from the Fed through the central bank’s discount window, others may be more willing to follow, analysts said.

“The psychology is, if a bank needs to borrow from the discount window, and they think there’s a stigma attached to it, they can say, ‘Citi has done it too,’ ” said Robert Albertson, chief strategist at Sandler O’Neill in New York.