Fed Leads Global Bid to Spur Loans
World's Central Banks Team Up
Thursday, December 13, 2007; Page D01
The Federal Reserve launched a concerted effort with central banks around the world to try to get financial institutions to lend money more readily, its latest attempt to help thaw a frozen financial system.
The surprise move, announced yesterday, less than a day after the Fed cut a key short-term interest rate, is an attempt by the central bank to prevent worsening problems in global credit markets from causing a U.S. recession. In this case, the tools are special auctions that would make at least $40 billion available to U.S. banks by the end of the year, and an agreement with the European Central Bank and the Swiss National Bank that would make $24 billion available to banks in Europe."The Fed has not only opened its vault doors to the banking industry, they are now trucking it to their place of business," Scott Anderson, a Wells Fargo senior economist, said in a report. "If that doesn't get the banks excited about lending again, nothing will, and the battle to forestall recession is already lost."
The effort underscores the global nature of the still-unfolding financial crisis. The coordinated action with the European Central Bank and national banks of Britain, Canada and Switzerland is the most extensive cooperation between world monetary authorities since the days after the Sept. 11, 2001, terrorist attacks.
Markets initially soared after the announcement yesterday. Investors were relieved by the news, having been disappointed Tuesday when the Fed did not announce any measures to improve global liquidity. The Dow Jones industrial average, up more than 200 points in morning trading yesterday, closed up 41 points, or 0.31 percent. Money poured out of short-term Treasury bonds, suggesting less fear on the part of investors.
As the Fed made its announcement, however, major banks made disclosures that underscore why they have been so reluctant to part with cash lately. Bank of America, Wachovia and PNC Financial Services each said they expect losses from bad debts to rise next year.