The Federal Reserve nearly quadrupled the amount of dollars the central banks can auction throughout the world to 247 million dollars in a coordinated bid to ease the worst crisis facing the financial markets since the 1920’s.
The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer of $ 67 million to cope with the continuous elevation of pressures in the U.S. dollar short-term financing markets.”The Bank of England, the Bank of Canada and the Swiss National Bank also participated.
Policy makers have struggled to revive confidence in the markets this week as investors in the stock of money relate to most financial institutions would be a failure after the collapse of Lehman Brothers Holdings Inc. and the government of the United . UU. rescue of American International Group Inc. The cost to cover losses against U.S. public debt rose to a record yesterday.
There is a complete lack of faith in the markets”, said Jim O’Neill, chief economist of Goldman Sachs Group Inc. in London. There are a lot of cash hoarding and people losing confidence in banks, so that central banks are acting to alleviate this. This might not be the last time you have to act.”
Markets welcomed the announcement, as was done in the financial statements of each central bank at 9 am Frankfurt time at the beginning of European construction trade. The cost of borrowing dollars overnight fell to 3.84 percent from 5.03 percent yesterday. It was 2.15 percent last week and reached the highest since 2001 on 15 September.
The Fed, which is adding 50 million dollars in its own banking system today, spray of dollars around the world through lines of exchange with other central banks. They can then auction in its own markets. The ECB, the Bank of England and the Swiss National Bank allocated a total of $ 64 million for one day today.
The timing, so early in the trading day, shows both the seriousness of tensions in the interbank market and as the authorities determination to resurrect proper functioning of the money markets”said Julian Callow, chief of the European economy in Barclays Capital in London.
Under the new arrangements, the ECB has doubled the limit of dollars can be obtained from the Federal Reserve to 110 million dollars and Switzerland’s central bank may offer $ 27 billion, an extra $ 15 million. New installations swap with the Bank of Japan, Bank of England and the Bank of Canada amounted to $ 60 million, $ 40 million and $ 10 million, respectively. Arrangements are allowed until January 30.
The ECB said it would offer $ 40 million “ for as long as it necesario”en overnight funds to the region banks. Also increase from $ 5 million the amount paid for 28 days and 84 days at $ 25 million and $ 15 million. The Swiss National Bank will boost its 28-day auction to $ 8 billion and the 84-day offers $ 9 billion. Both were previously 6 billion dollars.
The Bank of Canada said it has decided not to use its $ 10 million interchange facility at this time. The Bank of Japan, whose policy Board held an emergency meeting today, said it will use its $ 60 million as required by market conditions.
In auctions of their own currency, the ECB today provided 25 million euros in one day the money and the Bank of England 66.2 million pounds in a week of loans.
Joint action is the latest attempt by central banks to avoid financial crisis deepened this week after Lehman and fallen AIG and Merrill Lynch & Co. was sold. The crisis began over a year ago after the U.S. housing market implosion and the world economy has pushed to the brink of recession.
As markets seized up this week, central bankers pushed over U.S. $ 200 million in markets with those in Japan, Hong Kong, South Korea and Australia do it again today.
Wall Street ills have gone global, forcing the UK government to sponsor a rescue of mortgage lender HBOS Plc and Russia to pour money in their banks. The government of Russia said today that invest in the country’s stock market when it reopens tomorrow. The official Xinhua News Agency said that China will buy shares in State-owned banks to stabilize its market.
Swap lines was first established in December, when officials joined forces to boost the liquidity of the dollar throughout the world after interest rate cuts in the U.S., UK and Canada not to ease concerns on bank loans. The Fed increased its liaison with the ECB in July.
Today’s announcement boosted European and U.S. shares futures, which have been Pummelo this week as the contagion spread across financial markets. The Standard & Poor’s 500 Index futures expiring in December added 15, or 1.3 percent, to 1177.9 as of 11:22 am in London. More than 19 billion dollars has been wiped off the value of global equity markets since October 31.