21 Sep 2008
The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s.
The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion "to address the continued elevated pressures in U.S. dollar short-term funding markets.''
The Bank of England, the Bank of Canada and the Swiss National Bank also participated. Policy makers have struggled to revive confidence in markets this week as investors stockpiled money on concern more financial institutions would fail after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government bailout of American International Group Inc. The cost to hedge against losses on U.S. government debt climbed to a record yesterday.
There's a complete lack of faith in the markets, , chief economist at Goldman Sachs Group Inc. in London. "There's a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.'' Markets welcomed the announcement, which was made in statements from each central bank at 9 a.m. Frankfurt time at the start of European trading.
The cost of borrowing dollars overnight slid to 3.84 percent from 5.03 percent yesterday. It was 2.15 percent last week and reached the highest since 2001 on Sept. 15. Limit Doubled The Fed, which is adding $50 billion into its own banking system today, will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets. The ECB, Bank of England and Swiss National Bank allotted a total of $64 billion for one day today.
The timing, so early in the trading day, shows both the severity of the strains in the interbank market and as well the authorities' determination to resuscitate orderly functioning of the money markets, head of European economics at Barclays Capital in London
