FRANKFURT (AFP) — The US Fed launched fresh joint action with other central banks Friday to keep money markets alive as Washington wrangled over a rescue package to end the worst financial crisis in decades.
According to a joint statement the central banks of the eurozone, Britain and Switzerland alongside the Federal Reserve launched operations to pump more dollars into markets for banks to borrow in one-week loans.
In doing so, the central banks are using reciprocal currency arrangements -- otherwise known as swaps -- with the Fed.
"These operations are intended to address funding pressures over quarter end," a joint statement said. "Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressures in funding markets."
Commercial banks typically seek extra funds at the end of each quarter to help them balance their books but in the current financial market turmoil , credit has all but dried up, creating huge liquidity problems.
The Fed and its partner central banks have been providing hundreds of billions of dollars in liquidity in recent months in an effort to get the banks lending again but the problems caused by the US subprime home loan crisis remain.
The current situation may have been made more difficult after talks in Washington failed to reach accord on a 700 billion dollar (478-billion-euro) bank rescue plan, dashing hopes of an early agreement which would ease the financial market turmoil.
News that bank JPMorgan Chase had taken over struggling Washington Mutual for 1.9 billion dollars may also have added to the pressures.
Washington Mutual -- the second largest savings and loan institution in the United States -- had seen its shares lose 80 percent of their value since early 2008.
The Federal Reserve said Friday that it has authorised a 10-billion-dollar increase in its temporary swap facility with the ECB and a three-billion-dollar increase in its facility with the Swiss National Bank.
These expanded facilities will now support the provision of US dollar liquidity in amounts of up to 120 billion dollars by the ECB and up to 30 billion dollars by the Swiss National Bank.
In sum, these changes represent a 13 billion dollar addition to the 277 billion dollars previously authorized temporary reciprocal currency arrangements with other central banks, it said.
In addition to the swap lines with ECB and the Swiss National Bank, temporary swap lines previously have been authorized with the central banks of Japan (60 billion dollars), Britain (40 billion dollars), Australia (10 billion dollars), Canada (10 billion dollars), Sweden (10 billion dollars), Denmark (five billion dollars) and Norway (five billion dollars).
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