World Banks in bid to ease crisis

Central banks around the world today made their latest attempt to ease the crisis gripping banks with a US$180bn (€124bn) cash injection.

The US Federal Reserve is pumping the money into overnight dollar markets after lending between banks fearful of losses virtually ground to a halt in a week of turmoil.

The Fed is using the Bank of England, the European Central Bank as well as central banks in Switzerland, Japan and Canada as conduits for the cash.

In the wake of the Lehman Brothers bankruptcy and rescue takeover of Merrill Lynch, financial institutions have been gripped with fear.

Overnight, inter-bank dollar lending rates soared from 2.14% on Friday to more than 5% yesterday following the turmoil.

The six banks said in a joint statement: “These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets.

“The central banks will continue to work together closely and will take appropriate steps to address the ongoing pressures.”

This week the Bank of England has already pumped an extra £25bn (€31.5bn) into money markets and it repeated the exercise today.

It also said yesterday it would extend its Special Liquidity Scheme, which allows banks to strengthen their balance sheets by swapping riskier assets for Treasury bonds, until January 30.

The scheme had been due to close on October 21 but the Bank made the U-turn “in view of the current disorderly market conditions”.

The Bank of England was offering US$40bn (€27.7bn) of the Fed’s funds today although less than half of the cash was taken up.

Investec economist Philip Shaw said reasons why the dollars were not taken up could include the sheer size of funds available, or a shortage of collateral.

But he added: “The Bank’s numerous efforts to help to alleviate the current tensions in markets are very welcome.”