Central banks step in as bail-out fears mount

[TomClash]

Source: FT

The Bank of England moved on Friday to inject longer term cash into money markets as part of a co-ordinated effort with the US Federal Reserve, the European Central Bank and the Swiss National Bank.

The intervention follows the breakdown late on Thursday of talks over a $700bn bailout for the US financial system.

Money market traders said that interbank lending for terms longer than a day had come to a near standstill as counterparties feared that they may be lending to a bank that could suddenly become insolvent.

The Bank of England said it would extend $30bn in cash for a week against eligible collateral, drawing on currency swap lines put in place earlier this month with the Fed.

”These operations are intended to address funding pressures over quarter-end,” the Bank said.

The Bank will also make $10bn available for overnight borrowing. It had previously agreed to provide $40bn daily in overnight money last week, but so far, there has not been demand for the full amount.

Moreover, the Bank said it will inject longer term money into the sterling markets, as banks had been pressing it to do. It said it will extend its long-term repurchase operations against extended collateral, including mortgages. As of September 29, it will offer £40bn for maturity on January 15, taking banks through the year end when cash is generally hoarded by banks.

Bankers welcomed the move. Stuart Gulliver, chief executive of Global Banking and Markets at HSBC, said: ”It’s what the market was looking for. It shows a willingness to listen and will alleviate stresses in the UK bank system right through year-end.”

Money market rates have been distorted as banks parked money overnight, with overnight funds rates far below the Bank of England’s 5.0 per cent rate. However, as of Thursday, money borrowed for three months on an unsecured basis was trading at a crisis high of about 1.5 percentage points above the three-month forward overnight rate, known as SONIA.

The Bank said it would continue to drain reserves from the short term money markets to help keep those rates in line with its Bank Rate.

In addition, it said it and other central banks will continue to work closely and ”are prepared to take further steps as needed to address the ongoing pressures in funding markets.”



Read more: http://www.ft.com/cms/s/0/54852d4a-8b99-11dd-8a4c-0000779fd18c.html

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Watch the Fed inject another $50b today to keep the system from collapsing.

[MindMatter]

1. This is what the central banks do

In the US, Congress has no say whatsoever in the creation of liquidity. This is entirely under the control of the Fed. If there is a "liquidity crisis" (and there is not) the Fed has the tools and authority to deal with it. There is absolutely nothing in the bailout bill that addresses liquidity. The bailout bill only addresses PROFITS.

We need to be clear about that. That isn't to say we shouldn't look at the profits. If there are crucial institutions that will go bankrupt without some assistance, a bailout may be justified as the lesser of evils. But let's be clear about this. It has nothing to do with liquidity.

[TomClash]

2. Not day after day in one direction to this extent nt

Only the most financially sound people and institutions can get credit. And they don't need it. Central banks don't pump money into the system to this extent every day. And if they do the merry-go-round has to stop soon.

[MindMatter]

5. I'm not saying things are just dandy

They are not. These bankers are crooks and they have been playing a shell game for a very long time. As the regulation was relaxed, they got more and more Enron-like. So the collapse is real. I'm not questioning that.

I am questioning the so-called "Liquidity crisis". That is bullshit. The Fed can give the remaining banks as much money as they need. If there is a crisis in that area, it is that small businesses like mine are tightening our belts to get through this slowdown. We don't want the bankers' extra credit. And our whole economic system has become dependent on putting individuals and companies deeply into debt. When people refuse to take more debt, that indeed is a crisis for the banks.

So teh narrative being told is exactly 180 degrees opposite. There is a credit crisis for sure. The crisis is that the customers who are worthy of credit don't want any more credit and the banks can no longer dealing out unlimited credit to the marginal borrowers because they have run out of ways to hide that corruption. All that bad paper is catching up to them.

So maybe the answer is that we don't need as many banks our there trying to get us hopelessly in over our heads. Maybe we are all better off in the long run having some of these banks fail. Rather than trying to bolster bankers' profits, I'd rather see legislation that protects the average citizen from big losses as we go through this transition. For example, increasing the FDIC limits to $500,000 would be helpful in avoiding a run on the banks.

[pattmarty]

3. Ah yes; let the class war begin!!!!!!!!

[TomClash]

4. LOL! nt