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UPDATE: BOE: Coordinated Central Bank Action To Aid USD Liquidity

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LONDON -(Dow Jones)- The Bank of England said Thursday that as part of coordinated measures with other central banks to address continued elevated pressures in dollar short-term funding markets, it would each day offer dollar funds overnight against eligible collateral.

The measures are designed to improve liquidity conditions in global financial markets, and the central banks will work together closely and take "appropriate steps" to address the ongoing pressures, the BOE said.

The central banks involved are: the BOE, the U.S. Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.

"The first such operation will take place today. The amount offered in each repo operation will initially be $40 billion," the BOE said in a statement.

"This amount will be reviewed on a regular basis, in consultation with the other central banks," it said.

The bank said the dollar repurchase operations would take the form of an auction. Eligible collateral will consist of those securities that are routinely accepted in the BOE's short-term repo operations as well as conventional U.S. Treasurys, it said. That means only high-quality securities such as government bonds and Treasury bills will be accepted.

"The Bank of England has concluded a reciprocal swap agreement (swap line) with the Federal Reserve," the BOE said. "Through this arrangement the Federal Reserve will provide the Bank of England with U.S. dollar funding to facilitate these operations."

The BOE said it will, with the other central banks involved, constantly reassess the effectiveness of these overnight funding operations and adjust the size of their auctions accordingly.

The central bank said the effectiveness of these operations will be judged by the scale of the bids and the clearing price.

"...for example if tender rates were consistently below a level of 50 basis points over the target U.S. Federal Funds rate, then the scale of the auctions would likely be reduced," the bank said in a statement.

The BOE said the closing time for bids at the auction Thursday is 0815 GMT with results announced at 0845 GMT. Subsequent auctions will take place at 0715 GMT, with the closing time for bids at 0745 GMT and results announced at 0815 GMT.

-By Natasha Brereton, Dow Jones Newswires; +44 20 7842 9254; natasha.brereton@dowjones.com

(Adam Bradbery contributed to this article)

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(END) Dow Jones Newswires

September 18, 2008 04:28 ET (08:28 GMT)


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