Concerted action by central banks to address financial crisis

by Richard Kilner

Story link: Concerted action by central banks to address financial crisis

Central banks across the world have responded to the recent extreme conditions in the financial sector by announcing co-operative action aimed at addressing the present situation.

The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, the Bank of Japan and the Swiss National Bank are all participating in co-ordinated efforts to improve liquidity conditions in the world.

The collaborative plan follows individual actions enacted by a number of a central banks, and comes in the wake of a dramatic few days that has seen Lehman Brothers collapse and the world’s largest insurer, AIG, become effectively nationalised.

Beginning today, the Bank of England is to offer to lend each day US dollar funds overnight against eligible collateral.

The sum offered per repo operation will initially stand at $40bn, with the amount reviewed on a regular basis in consultation with other central banks.

The Federal Reserve will provide the Bank of England with US dollar funding to facilitate these operations, which will take part as an auction.