Sign in. It’s quick, free and it’s up to you.
An account is an optional way to support the work we do. Find out more.
MAJOR CENTRAL banks around the globe took coordinated action today to ease the strains on the world’s financial system, saying they would make it easier for banks to get dollars if they need them. Stock markets and the euro rose sharply on the move.
The European Central Bank, US Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland are all taking part.
As Europe’s debt crisis has spread, the global financial system is showing signs of entering another credit crunch like the one that followed the 2008 collapse of US investment bank Lehman Brothers. The possibility that one or more European governments might default have raised fears of a shock to the global financial system that would lead to severe losses for banks, recessions in the United States and Europe, and a stranglehold on lending.
‘Mitigate’
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a joint statement.
The central banks agreed to reduce the cost of temporary dollar loans they offer to banks — called liquidity swaps — by a half percentage point. The new, lower rate will be applied to all central bank operations starting on Monday.
Non-US banks need dollars to fund their US operations and to make dollar loans to companies that need the US currency. The dollar is the world’s leading currency for central bank reserves and is widely used in international trade.
“Obviously, these moves are designed to increase the flow of dollar liquidity to European banks, which are struggling to attract short-term funding because of questions about their exposure to potential losses on holdings of European sovereign bonds,” said Paul Ashworth, chief US economist at Capital Economics.
He explained that today’s move does not expose the Fed to propping up ailing European banks.
“The ECB actually makes the loans to these banks, so the Fed is not on the hook for any losses if a European bank failed,” Ashworth added.
Support
The central banks are also taking steps to ensure that banks can get ready money in any of their currencies if market conditions warrant by establishing a temporary network of reciprocal swap lines. Right now there is no need to offer non-domestic credits in currencies other than the dollar, the central banks said, but they “judge it prudent” to get such an arrangement in place ahead of time.
Stocks surged following the news. Germany’s DAX was trading 4.7 per cent higher, France’s CAC was up 4.1 per cent, and Dow futures in New York were up 2.2 per cent. The euro surged up 1.4 per cent to $1.35 and oil was immediately up $1.45 to $101.25.
Fears of more financial turmoil in Europe have already left some European banks dependent on central bank loans to fund their daily operations. Other banks are wary of lending to them for fear of not getting paid back.
Such constraints on interbank lending can hurt the wider economy by making less money available to lend to businesses.
A ratings downgrade by Standard & Poor’s for six major US banks yesterday added to fears that Europe’s woes would hurt the financial system globally.
All the “Hamas” bots seem to be missing when it comes to denouncing Islamists when it comes to kidnapping of Women and Children. Double standards from the left and Islamic ideologies.
Hope international attention leads to the children and women being found. Thanks Journal for highlighting it.
@Oliver Cleary: I don’t think you’ll find anyone that supports such actions.
Nice try at deflection, though.
No, care to condemn Israel’s crimes against humanity?
Crimes it has been committing since it first stole the homeland of the Palestinian.
@ItWasLikeThatWhenIGotHere: I’ll engage when you use your real name. Stop hiding behind a pseudonym. You do not merit honest discussion because you are in essence dishonest
@Oliver Cleary: What you mean you find yourself unable to condemn Israel’s crimes against humanity.
Why does any pseudonym prevent you from doing that?
@ItWasLikeThatWhenIGotHere: “since it first stole the homeland of the Palestinian” showed your cards there, you obviously have zero understanding of the conflict
@Etcher: @Etcher: What do I not understand?
If people claiming to be descendants of Irish who left these shores long ago illegally moved back here, established terrorist groups, attacked us, drove us out of our homes, off our lands and out of our towns and villages, attacked and overthew our government and established their own state here, then what would be different about what the colonial Israeli settler has done to the Palestinian?
And what do you think we would do about it?
And wouldn’t we be right?
Now would you like to tell us your understanding?
It is not cool enough to be seen to be concerned about what happens in Nigeria.
@Sun Rise: Since when? It’s a scandal that they can’t protect their schoolchildren. Similar happened in Italy years ago, it was rife. All for money mostly.
@Sun Rise: What a dump of a country
@Etcher: There aren’t that many books available here that give an insight into life in Nigeria, or West Africa even.
But an author that does have a few books on the shelves is Oyinkan Braithwaite, and her novel My Sister, the Serial Killer is worth the read.
But this is based in a city (Lagos perhaps, I can’t remember), and does not touch on rural Nigerian life, much less the life of those in the northern parts that are subject to much of this terrorism.
You have to admire these brave Jihadists on their dangerous military operations. One of the school children might throw their schoolbag at them, causing scratches!
@Brian Hunt: As brave as the Israelis, would you say?
Horrendous for these children & their families. Hope they are reunited soon & not abused or trafficked, like the 14 year who went missing from Tulsa
have your say