Fed joins with European banks to battle credit crisis
WASHINGTON - The Federal Reserve announced Friday that it will expand a series of efforts to deal with the global credit crisis, in coordination with European central banks.
India's Champagne Indage to buy Australian winery for $60 millionThe Fed said it was boosting the amount of emergency reserves it supplies to U.S. banks to $150 billion in May, from the $100 billion it supplied in April. The Fed took this action and several other moves to boost credit in coordination with the European Central Bank and the Swiss National Bank.
The latest moves are part of a series of actions the Fed has made since the credit crisis struck in August.
The efforts are designed to increase reserves so that banks don't become hesitant about lending to consumers and businesses, which would make the current economic slowdown even more severe.
The Fed's decision to boost the amount of loans it makes to banks every two weeks, in a process known as a Term Auction Facility, was aimed at sending a strong signal that the central bank is prepared to supply as much in reserves as U.S. banks need. The latest move was made in coordination with the European central banks' efforts to bolster their financial systems as well.
The Fed said it was also expanding the types of assets that investment banks can use as collateral to receive loans from the central bank. In March, the Fed used powers it obtained during the Great Depression to begin making loans to investment banks. Previously, the Fed only made direct lends to commercial banks.
The European Central Bank said it will increase the amount of dollars offered to $25 billion in the latest series of tenders, with the auctions to come every two weeks. The tenders' maturity will be 28 days. Previously, the ECB has auctioned off amounts that have ranged from $10 billion to $15 billion per tender but without a set schedule.
"It is intended to continue the provision of U.S. dollar liquidity for as long as the governing council considers it to be needed in view of the prevailing market conditions," the bank said in a statement.
Switzerland's central bank also said it would increase the scheduled frequency of its own auctions to every 14 days, with a maximum allocation of $6 billion per auction. Its next auction is scheduled for May 6 with a settlement on May 8. Like the ECB, the term would be 28 days.
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