The U.S. Federal Reserve announced that $16.5 billion of its first $20 billion in loans under its term auction facility went to institutions in the New York district [subscription required], an area that includes the headquarters of some of the nation's largest banks, The Wall Street Journal reported on Friday. The Fed doesn't disclose loan sizes or borrowers' identities.

Meanwhile, the Fed's Dallas district reported loans of $1.4 billion, while the St. Louis district reported loans of $1 billion.

Earlier this fall, the Fed established the term auction facility as an alternative short-term loan operation because banks were reluctant to access the Fed's traditional short-term window, the discount window. Banks became reluctant to borrow from the discount window because of the stigma attached: doing so can telegraph distress to other banks.

Fed Analysis: So far, the Fed's effort, along with the effort of the European Central Bank and other major central banks, to provide short-term loans to banks appears to be working. Both overnight and two-week liquidity has improved, as measured by yield spreads and transaction conditions. A later announcement by the Fed to maintain the term auction facility "for as long as necessary" further calmed the markets. Still, investors/readers should keep in mind that the housing correction / credit quality issue is young: given the plethora of at-risk subprime loans and related assets, more default declarations are undoubtedly ahead in 2008.

If you've been through high school, you know how peers can pressure you to do things you might ordinarily avoid. This came to mind while reading two articles in yesterday's Wall Street Journal. The common theme was how individual actors in markets -- whether top traders or big banks -- are acutely influenced in their behavior by what they observe their peers doing.

In the first, Mark McGoldrick decided to leave [subscription required] the Goldman Sachs Group (NYSE: GS) because he felt his $70 million in 2006 compensation was not enough for the $4 billion in profit he contributed to the firm. He wanted what other hedge fund players were making -- $1.2 billion for his group (representing the typical compensation of a hedge fund -- a 2% management fee plus 20% of the profits). Instead, Goldman paid his group a mere $500 million (less than 15% of his group's profits).

Similarly, the Fed spent a significant amount of time trying to get banks to use its Discount window to take out loans after Friday's 50 basis point rate cut. The Fed feared that banks would not use the Discount window because it made them look weak in the eyes of their peers.

It remains to be seen whether the Fed's effort to make peer pressure work will breath life into borrowing from its Discount window. But McGoldrick has already left Goldman to do -- what else? -- start his own hedge fund so he can keep up with his peers.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Goldman.