Aug. 10 (Bloomberg) -- Central banks in the U.S., Europe, Japan, Australia and Canada added about $136 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets.
Money market rates rose worldwide the past two days on evidence the subprime crisis is spreading after global investors piled into U.S. securities backed by mortgages. By the end of the day, the central bank actions helped spark a turnaround in American stocks and drive the U.S. overnight bank lending rate below the Fed's target.
``They accomplished their short-term mission to make sure the market stabilized ahead of the weekend,'' said David Resler, chief economist in New York at Nomura Securities International Inc. ``It remains to be seen how much more they'll have to do.''
The U.S. federal funds rate opened at 6 percent, a six-year high. It sank as low as 1 percent in late trading, according to ICAP Plc, after the New York Fed staged three repurchase operations, buying assets including mortgage-backed securities. The total of $38 billion, following $24 billion yesterday, was the highest amount of temporary funds since Sept. 12, 2001.
Europe's Response
The European Central Bank loaned 61.05 billion euros ($83.6 billion) after injecting a record 94.8 billion euros of funds yesterday that had to be paid back today. Overnight euro rates again rose as high as 4.27 percent today, compared with the ECB's benchmark rate of 4 percent.
The ECB is ``giving the markets the appropriate liquidity,'' ECB President Jean-Claude Trichet told daily newspaper Ouest- France in an interview. The bank is paying ``great attention to the markets,'' he said.
Japan's central bank added 1 trillion yen ($8.5 billion) today and the Reserve Bank of Australia lent $4.2 billion, the most in more than three years. Central banks in Norway and Switzerland also injected money into the financial system and countries including Denmark, Indonesia and South Korea said they're ready to provide cash.
Spreading Crisis
The credit-market turmoil worsened this week after European banks acknowledged their vulnerability to rising delinquencies on American subprime mortgages. In the U.S., American Home Mortgage Investment Corp. this week became the country's second-biggest home lender to file for bankruptcy.
Countrywide Financial Corp., the biggest U.S. mortgage lender, today said it faces ``unprecedented disruptions'' that may hurt profit.
No crisis here!
...unprecedented disruptions "may hurt profit"
the New York Fed staged three repurchase operations, buying assets including mortgage-backed securities
They say that so easily.
Capacitors are great until they get too much voltage.
Edited by Rogerdodger, 11 August 2007 - 05:27 PM.
