The Federal Reserve says it will begin paying interest on commercial banks’ reserves and will expand its loan program to squeezed banks, fresh steps to help ease a painful credit crisis.

Congress in the $700 billion bailout bill President Bush signed on Friday gave the Fed the power to pay interest on those reserves for the first time. The law accelerated the effective date to Oct. 1 of this year versus 2011.

The move was seen as another way to expand the Fed’s resources to battle the worst credit crisis in decades. It will encourage banks to keep more resources at the central bank.