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Global Central Banks Work To Soothe Fears

Fri, Sep 19 2008, 07:48 GMT
by Mark Vitner

Wachovia

Central Banks Take Action to Bolster Liquidity

Global central banks, including the Federal Reserve, the Bank of Canada, the Bank of England (BOE), the Bank of Japan, the European Central Bank (ECB), and the Swiss National Bank (SNB) announced coordinated measures this morning designed to address the continued elevated pressures in U.S. dollar short-term funding markets. Specifically, the Fed doubled its swap line to the ECB to $110B and increased its line to the SNB to $27B. In addition, new swap lines have been authorized with the Bank of Japan, the Bank of England, and the Bank of Canada. All of theses reciprocal agreements have been authorized through January 20, 2009.

In addition to the Fed’s actions, the ECB added an overnight maturity to its repo operations, noting that it will keep the facility in place “for as long as needed.” The ECB also announced that it would increase the amount it would lend out for 28 days to $25 billion and for 84 days to $15 billion. The SNB also increased the size of its 28- and 84-day auctions, raising them from $6 billion each to $8 billion and $9 billion, respectively. The SNB initiated an overnight auction facility as well. The BOE offered up $40 billion in overnight loans, of which $14 billion was borrowed.

This morning’s moves were designed to bolster liquidity in the interbank market, which has seized up in recent days. Banks around the world are less willing to lend to one another, causing LIBOR to skyrocket and sending T-bill rates to their lowest levels since World War II. The TED spread, which is the difference in those two, has spiked to its highest level since 1984.

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Published on  Fri, Sep 19 2008, 09:30 GMT