Money markets freeze again Central banks dish out more cash for hungry banks
Fighting greed: People rally in the financial district in New York against the proposed govt buyout of financial firms.Picture: AFP
Saturday, September 27, 2008
CENTRAL banks across the world scrambled to meet desperate demand for cash yesterday, with Europe's big three offering billions of one-week US dollars for the first time to break a quarter-end money market logjam.
As the financial crisis went from bad to worse, the European Central Bank, the Bank of England and Swiss National Bank collectively put up US$74 billion of one week money.
Demand from cash-hungry banks, particularly for the ECB cash, was hefty as lending between banks on money markets remained virtually paralysed.
"There is no term lending of note between counterparties. Any term funding there is coming from the central banks," said Meyrick Chapman, rates strategist at UBS.
In Asian time, the central banks of Japan, Australia and South Korea also pumped in cash to lubricate their markets.
As negotiations over an unprecedented US$700 billion US bailout faltered, news that Washington Mutual, the largest US savings and loan bank, was taken over by authorities and its deposits auctioned off only added to the thirst for liquidity.
"Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressures in funding markets," said a statement from the Federal Reserve, which expanded dollar swaps facilities with other central banks.
The ECB's one-week dollar tender was swamped with demand the US$35 billion attracted bids totalling US$82.495 billion. But only just over half of the SNB's US$9 billion was taken up.
The Bank of England received bids worth 1.06 times the amount on offer in its one-week repo of US$30 billion the first time UK demand for dollars has exceeded the amount on offer.
But the sterling money market at the three-month level remains under much more strain, prompting the BoE to offer £40 billion around that maturity next week, with more to come, a move analysts hailed as welcome ... and overdue.
"This is a huge step forward and reflects the fact that credit markets have almost totally seized up over the last week and a half," said Philip Shaw, chief economist at Investec, of the BoE's pending sterling offers.
With commercial banks everywhere hoarding cash, central banks were almost the only game in town.
The Reserve Bank of Australia launched its first ever repurchase operation in US dollars and all US$10 billion on offer was hungrily snapped up. The RBA established a US dollar swap line with the Federal Reserve earlier in the week.In South Korea, the Finance Ministry said it would inject US$10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
The RBA and the Bank of Japan also kept adding extra cash to their own banking systems yesterday.
Yet the sums on offer paled into insignificance compared to the Fed's largesse US institutions borrowed from the Fed US$188 billion per day on average in the latest week, almost four times the previous record.Reuters
As the financial crisis went from bad to worse, the European Central Bank, the Bank of England and Swiss National Bank collectively put up US$74 billion of one week money.
Demand from cash-hungry banks, particularly for the ECB cash, was hefty as lending between banks on money markets remained virtually paralysed.
"There is no term lending of note between counterparties. Any term funding there is coming from the central banks," said Meyrick Chapman, rates strategist at UBS.
In Asian time, the central banks of Japan, Australia and South Korea also pumped in cash to lubricate their markets.
As negotiations over an unprecedented US$700 billion US bailout faltered, news that Washington Mutual, the largest US savings and loan bank, was taken over by authorities and its deposits auctioned off only added to the thirst for liquidity.
"Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressures in funding markets," said a statement from the Federal Reserve, which expanded dollar swaps facilities with other central banks.
The ECB's one-week dollar tender was swamped with demand the US$35 billion attracted bids totalling US$82.495 billion. But only just over half of the SNB's US$9 billion was taken up.
The Bank of England received bids worth 1.06 times the amount on offer in its one-week repo of US$30 billion the first time UK demand for dollars has exceeded the amount on offer.
But the sterling money market at the three-month level remains under much more strain, prompting the BoE to offer £40 billion around that maturity next week, with more to come, a move analysts hailed as welcome ... and overdue.
"This is a huge step forward and reflects the fact that credit markets have almost totally seized up over the last week and a half," said Philip Shaw, chief economist at Investec, of the BoE's pending sterling offers.
With commercial banks everywhere hoarding cash, central banks were almost the only game in town.
The Reserve Bank of Australia launched its first ever repurchase operation in US dollars and all US$10 billion on offer was hungrily snapped up. The RBA established a US dollar swap line with the Federal Reserve earlier in the week.In South Korea, the Finance Ministry said it would inject US$10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
The RBA and the Bank of Japan also kept adding extra cash to their own banking systems yesterday.
Yet the sums on offer paled into insignificance compared to the Fed's largesse US institutions borrowed from the Fed US$188 billion per day on average in the latest week, almost four times the previous record.Reuters
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