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Thursday, September 18, 2008

Central Banks Take Coordinated Action

Central banks are attempting to increase liquidity in global financial markets. Banks have been reluctant to lend to each other recently, and this is an attempt to increase the flow of funds in these markets:

A consortium of the world's major central banks this morning pumped $180 billion into global financial markets, attempting to ensure banks have enough cash to operate and rebuild confidence in a system that had virtually ground to a halt.

The coordinated action, announced at 3 a.m. eastern time, saw the U.S. Federal Reserve free up additional dollars for financial centers around the world, including $110 billion for European banks, $60 billion for the Bank of Japan and $10 billion for the Bank of Canada. Those institutions, in turn, will make the money available in short term loans to banks and financial firms that have, given the turmoil of recent days, begun loathe to lend to each other.

Here's the late night press release from the Fed:

Press Release: September 18, 2008, 3:00 a.m. EDT

Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. 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 continue to work together closely and will take appropriate steps to address the ongoing pressures.

Federal Reserve Actions
The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks. 

The FOMC has authorized increases in the existing swap lines with the ECB and the Swiss National Bank. These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $110 billion by the ECB, an increase of $55 billion, and up to $27 billion by the Swiss National Bank, an increase of $15 billion. 

In addition, new swap facilities have been authorized with the Bank of Japan, the Bank of England, and the Bank of Canada. These facilities will support the provision of U.S. dollar liquidity in amounts of up to $60 billion by the Bank of Japan, $40 billion by the Bank of England, and $10 billion by the Bank of Canada. 

All of these reciprocal currency arrangements have been authorized through January 30, 2009. 

Information on Related Actions Being Taken by Other Central Banks
Information on the actions that will be taken by other central banks is available at the following websites:

Bank of Canada
Bank of England
European Central Bank
Bank of Japan
Swiss National Bank

    Posted by on Thursday, September 18, 2008 at 03:42 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (43)


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