- credit crisis - Federal Reserve - financial crisis - Hong Kong - Japan - USA
The world's top central banks announced a huge onslaught to boost the volume of dollars available to strangled money markets on Thursday, as global financial turmoil ripped deeper into confidence.
"Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the (US) Federal Reserve, the Bank of Japan and the Swiss National Bank (SNB) are announcing coordinated measures," they said.
After already pumping hundreds of billions of dollars into markets this week in the wake of the collapse of Lehman Brothers, the action will "address the continued elevated pressures in US dollar short-term funding markets," they said.
The measures, "together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets," a joint statement said.
Leading the way the United States central bank, the Federal Reserve, announced a cash facility of 180 billion dollars.
And in an indication of the long-running nature of the already 14-month-old crisis, the Fed said the "reciprocal arrangements" by the central banks would run up to January 30, 2009, for another four and a half months.
The Fed approved increases in the existing swap lines with the ECB of up to 110 billion dollars and with the SNB of up to 27 billion dollars.
New swap facilities were also authorized with the Bank of Japan (up to 60 billion dollars), the Bank of England (up to 40 billion dollars), and the Bank of Canada (up to 10 billion dollars).
The ECB meanwhile announced another quick one-day tender of 25 billion euros. The Frankfurt-based institute had this week already provided 100 billion euros in two similar emergency actions.
Japan's central bank chief Masaaki Shirakawa said after an emergency board meeting -- the ECB's governing council was also meeting Thursday -- that "taking swift measures was necessary."
"The tension in international financial markets has been rapidly increasing and spreading to unexpected areas," Shirakawa said.
Since the credit crunch began just over a year ago, distrust has spread through the money markets where banks usually lend to each other, about the assets being offered to each other as collateral.
The resulting drying up of liquidity has become a drought this week with the demise of Lehman Brothers and the last-minute rescues of fellow Wall Street titan Merrill Lynch and insurance giant AIG.
As a result, central banks have had to step up the plate and fulfill their traditional role as the lender of last resort, pumping in hundreds of billions of dollars to stop these markets from suffocating.
With attention turning to who will be next -- Morgan Stanley was reportedly in talks to merge with US regional lender Wachovia or be bought by HSBC or China's CITIC -- investors were desperately seeking higher ground.
Share prices remained volatile, yields on short-term US treasuries fell to historic lows and the price of gold -- always a safe haven in times of trouble -- soared.