News & Current Affairs

September 18, 2008

Central banks release more funds

Central banks release more funds

Dollar bills

The extra funds are aimed at easing banking sector woes

Global central banks are pumping billions of dollars of extra funds into money markets in a co-ordinated move to lift the amount of credit available.

The move is the fourth such joint effort since December last year. It will see the US Federal Reserve inject a further $180bn (£99bn).

The Bank of England is releasing $40bn, while the European Central Bank is to provide $55bn.

The Bank of Japan and Swiss National Bank have announced similar moves.

‘Appropriate steps’

“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,” said the Bank of England.

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

It does help to release some of those immediate tensions that have been building up in the money market
Ian Stannard, currency strategist, BNP Paribas

The central banks of South Korea, India, Canada and Australia have also released extra funds.

The co-ordinated move comes after four days of almost unprecedented turmoil in the global financial industry.

Firstly, US giant Lehman Brothers filed for bankruptcy protection, while compatriot Merrill Lynch lost its independence in a rescue takeover by Bank of America.

The US government has also had to bail-out insurance giant AIG, while in the UK, thousands of jobs are predicted to go at banking group HBOS following its sale to rival Lloyds TSB.

Major problem

Analysts said the latest move by the central banks should help to ease immediate fears.

“Obviously it does not tackle the underlying root causes of the problem, but it does help to release some of those immediate tensions that have been building up in the money market,” said Ian Stannard, senior currency strategist at BNP Paribas.

Koichi Haji, chief economist at NLI Research in Tokyo, said the co-ordinated move “shows how serious the problem has become”.

“I think the root cause was letting Lehman fail,” he said.

“That made investors reluctant to supply funds to their counterparts, particularly to the smaller banks.”

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