Central banks join to ease liquidity crisis

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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