In an effort to ease the worldwide liquidity crisis, the central banks of Canada, UK, EU, USA and Switzerland have joined forces to make funds available at the discount window in what has been described as the biggest cross-border co-operation since 9-11.

USA’s Federal Reserve has established a temporary term auction facility (TAF) and foreign exchange swap lines with the European Central Bank and Swiss National Bank under which the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window.

The Federal Bank said in a statement that, by injecting term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote ‘the efficient dissemination of liquidity when the unsecured interbank markets are under stress’.

The Federal Bank said the experience gained under this temporary program would be helpful in assessing the potential usefulness of augmenting the Federal Reserve’s current monetary policy tools of open market operations and the primary credit facility with a permanent facility for auctioning term discount window credit.

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