Fed Moves to Pump Dollars into European Banks

From the The Telegraph (UK):

The Bank of England and central banks in the United States, eurozone, Japan, Switzerland and Canada have launched co-ordinated global action to ease a growing credit crisis among eurozone banks.

“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 Bank of England said in a statement.

The central banks are providing liquidity to the financial system by lowering the price on existing dollar swaps, making it easier for banks to get access to dollars.

Eurozone banks have struggled to raise dollars amid Europe’s escalating debt crisis. Many traditional sources of dollar funding, such as US money markets, are no longer willing to make short-term loans to many European banks or are asking too high a price to do so, raising the spectre of the 2008 credit crunch

Christian Schulz, of Berenberg Bank, said: “This shows that central banks across the world continue to cooperate and that the ECB, and its partners, are very aware of the funding stress that European banks are under at the moment.”

Central banks have also agreed to supply liquidity in other major currencies if needed.

Michael Hewson, market analyst at CMC Market, said: “It gives an indication that monetary authorities are prepared to do what is required to stop a freeze up in the funding markets. But, basically all they are doing here is QE (quantitative easing) on steroids. It does not deal with the underlying issues.”

Read more here.