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IMF urges central bank action against credit crisis

©

Latest update : 2008-10-08

The International Monetary Fund urged central banks to take urgent action at "a national level" to combat a potential world crash on the scale of the Great Depression of the 1930s.


The EU moved to increase support for big banks as the international finance chaos deepened Tuesday, with Russia setting up a huge rescue package for its banks and markets again panicking.
   
Russia was also to negotiate a four billion euro (5.4 billion dollar) emergency loan to Iceland, which is battling against the whole country going bankrupt and nationalised its second biggest bank.
   
While European banks frantically sought dollars at exorbitant interest rates, an emergency meeting of EU finance ministers agreed to coordinate their responses to the financial crisis.
   
The ministers also agreed to increase a bank deposit guarantee ceiling to 50,000 euros from 30,000-euros -- still short of earlier expectations of a 100,000 euro savings guarantee.
   
Iceland, its banks frozen by debt and the credit crunch, nationalised Landsbanki and gave its biggest bank Kaupthing a 500-million-euro (678-million-dollar) loan. Glitnir bank, the third largest, was nationalised last week.
   
In Russia, President Dmitry Medvedev promised up to 36 billion dollars in credit to support its banks, telling an emergency meeting of ministers and bankers that loans could last for up to five years.
   
Russia takes a "positive view" of the Icelandic request, Russia's Finance  Minister Alexei Kudrin said.
   
Distressed global stocks endured another rollercoaster ride of rallies and losses after the devastating falls of Monday.
   
London added 0.66 percent, reversing losses in early trading, after its 7.8 percent slump Monday.
   
Royal Bank of Scotland shares plunged up to 40 percent as it denied reports it had sought an emergency cash injection from the British government. Lloyds TSB slumped 9.94 percent and Barclays 5.89 percent after the BBC reported that the three banks spoke with Chancellor of the Exchequer Darling late Monday to discuss a possible capital injection.
   
Frankfurt gained 0.82 percent and Paris 1.33 percent, in similar ups and downs, after diving 7.0 and 9.0 percent respectively on Monday.
   
In Asia, Tokyo fell by 3.0 percent, while Sydney jumped 1.7 percent after Australia's central bank sprang a surprise interest rate cut.
   
Again there was no hiding from the financial panic. Egypt's CASE-30 stock index fell 16.5 percent.
   
The EU finance ministers meeting turned into a war council to fight the conflagration consuming the global financial system.
   
Bolstering bank deposit guarantees seemed the main measure under consideration. But Jean-Claude Juncker, who heads finance ministers from the 15 countries that use the euro, said said all necessary measures would be considered.
   
In Washington, the International Monetary Fund urged central banks to provide direct and limited support to the banking system, saying some 657 billion dollars would be needed in the next few years.
   
The European Central Bank on Tuesday pumped 50 billion dollars (37 billion euros) back into interbank money markets, but it said banks sought more than double that amount.
   
The ECB said 67 eurozone banks had requested more than 109 billion dollars, and paid a whopping 6.75 percent for dollars made available in the daily attempt to keep cash flowing through the financial pipeline.
   
It announced a schedule for new coordinated action with other central banks to support the provision of US dollars to cash-strapped commercial banks.
   
ECB president Jean-Claude Trichet has pledged to keep injecting money into the banking system "as long as necessary" to help institutions hit by the current crisis.
   
The Bank of Japan also put more billions into the system and US Treasury officials said they would act quickly to implement a 700 billion dollar bailout plan for the financial sector.
   
The US Federal Reserve and Treasury said they were studying making unsecured loans in an effort to keep much-needed credit flowing. The Fed said it would start to pay interest on bank deposits and expand bank loans to up to 900 billion dollars by year-end in a bid to increase liquidity.
   
The Fed also announced plans to buy commercial paper to help thaw a frozen market for short-term corporate borrowings.
   
The US government approved a law Friday to buy up 700 billion dollars of bad mortgages and other assets from banks, which would wipe debts from their books in hopes they will be able to start lending more freely again.
   
"The aggressive actions being taken by the Fed, and increasingly by the central bankers in Europe and Asia, point to an eventual stabilisation in confidence -- where the real crisis lies," said David Kastner at Charles Schwab & Co.
   
"In the meantime, we expect sharp bouts of bargain hunting and more panic sell-offs."
   

Date created : 2008-10-08

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