U.S. Federal Reserve Announces $180 Billion Cash Flood to Fight Crisis

Swap arrangements made with banks around the globe

To fight the racing fires of global financial crisis, the Federal Reserve announced a $180 billion cash line. Leading central banks said they would join in.

The Federal Reserve said it was expanding its temporary arrangements for banks to obtain $180 billion "to provide dollar funding for both term and overnight liquidity operations by other central banks." The move was to fight "continued elevated pressures in U.S. dollar short-term funding markets," the Federal Reserve said.

The Fed's statement concerned "reciprocal arrangements", which several central banks had authorised to run up to January 30, 2009, or for another four and a half months.

Central banks have intervened massively with direct cash injections since financial disaster struck Wall Street at the weekend. The Fed said those actions, and the latest more technical measures to relieve tension on the dollar money market, "are designed to improve the liquidity conditions in global financial markets."

The Fed acted minutes after the Bank of England announced that leading central banks around the world would make a concerted onslaught through intervention in money markets.

These extraordinary statements came after wild falls on stock markets and U.S. Treasury bond yields, a surge in the price of gold, reports that investment bank Morgan Stanley is looking for help after the collapse of Lehman Brothers, and uncertainty after the nationalisation of AIG insurance.

The Fed said that it had "authorized increases in the existing swap lines with the ECB and the Swiss National Bank." It said the Japanese, British and Canadian central banks had also increased their arrangements giving access to dollars through so-called "swap" arrangements. It gave the amounts as $60 billion for the Japanese bank, $40 billion by the Bank of England and $10 billion by the Canadian bank.

The Fed said its own latest massive liquidity window for the banking system would back up such support of $110 billion by the European Central Bank, marking an increase in its facility of $55 billion, and $27 billion by the Swiss bank, an increase of $15 billion.

Copyright Agence France-Presse, 2008

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