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Banks interventions: Trying to settle down global uncertainty

Tue, Sep 30 2008, 12:50 GMT
by Marina Schiaffino

FXstreet.com


Desperate cases call for desperate measures and we are living the most uncertain times ever seen in the global economy. On FXstreet.com we have prepared a special overview of the crisis to help you know what's going on over the world.

Summary

Central Banks' injection of money

Money and banks The biggest central banks are tightening their efforts to bring back to life the stalled global financial system, through millionaire injections of money.

This crisis started with the collapse of the US subprime mortgages about a year ago. Then the Fed announced an expansion of USD330.000 million in its swaps, trying to boost markets liquidity.

That measure is added to the swaps conceded by the ECB and eight other central banks, going from a total of USD290.000 million to USD620.000 million.

The BoE injected GBP40.000 million in 3-month funds trying to improve market conditions after a weekend of bank failures in Europe and in the midst of the Bailout Plan negotiations.

Following the same trend, the BoJ has been injecting money in its banking system for 9 days in a row for a total of JPY1,5 trillion.

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State interventions in private banks

US

The Washington Mutual (WaMu) bank starred as the biggest collapse of a financial institution in the history of the US. The government takes control of the entity that holds 307,000 million dollars in assets and agrees on an emergency sale to JP Morgan.

More recently, on September 25th, the financial group Fortis has been forced to accept a EUR11.200 million injection from the governments of Belgium, Netherlands and Luxembourg after talking with the ECB president Jean-Claude Trichet in order to prevent one of the 20 largest banks in Europe from getting buried by the crisis too.

Also helped by the European banks the Belgian-French bank Dexia was propped up with public money by the governments of Belgium, France and Luxembourg which injected EUR6.4 billion in cash.

In UK, the government nationalized the mortgage lender Bradford & Bingley, while it sold its branches and deposits to the Spanish bank Santander.

On the other hand the German mortgage bank Hypo Real Estate reached a last-minute agreement with a group of banks in order to receive a loan to help it resolve the funding crisis.

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Stocks and the crisis

US

US Stock markets have posted the largest declines of the year on the aftermath of the U.S. Congress rejection of Bush’s bailout plan to buy toxic mortgages from failing credit institutions. Wall street experienced its worst day since 1987. Dow Jones Industrials plunged 7%, while the Standard & Poor’s 500-stock index, plunged almost 9 percent, its third biggest decline since World War II.

Today markets seem to have opened somewhat brighter on news that the White House will continue working with congressmen in order to reach an agreement on the Bailout plan, and US stocks opened higher, however, financial markets seem still troubled. Dow Jones Industrials has recovered partially from yesterday’s losses.

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What do the Governments think?

Governments

Bear Stearns and AIG have been rescued at the same time the abandon of Lehman Bros haunted the global markets with fear. Authorities should keep casualties to a minimum and actively help along with the bailout in order to let financial entities regain trust in the global market. 

For the moment the focus is on the risks in the US. But the problems in the Euro Zone (and elsewhere) are increasing and governments are not doing much to counterbalance them.

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Published on  Wed, Oct 1 2008, 14:52 GMT


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