Central banks expand effort to fight credit crisis
Written on July 31, 2008
The U.S., European and Swiss central banks on Wednesday extended liquidity offerings to stressed banks and securities firms to ease credit strains that have weighed on the global economy for nearly a year.
The central bank actions are intended to ease persistent global financial instability as institutions write down losses from exposures to delinquent U.S. mortgages.
The U.S. Federal Reserve said it was prolonging to January 30 an emergency credit facility that it provides for primary dealers in one of several steps to boost liquidity in financial markets. The facility was set to expire in mid-September.
“The fact that the Fed is extending these lending facilities to January suggests that Fed officials are still concerned about market conditions and believe that financial conditions remain unsettled,” said Michael Moran, chief economist at Daiwa Securities America in New York.
The Fed also said it would offer longer-term loans to banks under its Term Auction Facility, introducing 84-day offerings in addition to its current 28-day loans payday advance online. The TAF was established in December to try to tamp down funding pressures.
In parallel, the European Central Bank and Swiss National Bank said they would begin conducting U.S. dollar auctions with 84-day terms, in addition to their current 28-day offerings. The Fed said it would temporarily expand its dollar swap line with the ECB to $55 billion from $50 billion.
In addition to extending its Primary Dealer Credit Facility, the U.S. central bank also said it would keep open its Term Securities Lending Facility, which provides liquid U.S. Treasury securities in return for harder-to-trade collateral, through January 30.
The joint measures helped give a lift to share prices both in the United States and Europe, and tightened spreads on interest rate swaps, suggesting the actions helped investors shed some of their aversion to risk.
Filed in: management.