Central banks across the world scrambled to meet a desperate demand for cash on Friday, as U.S. authorities closed a bank
Central banks across the world scrambled to meet a desperate demand for cash on Friday, as U.S. authorities closed a bank and the White House's $700 billion bailout plan ran into trouble.
With the renewed intensity of the financial crisis continuing to shred market confidence, the European Central Bank, Bank of England and Swiss National Bank stepped up their efforts to try and calm the situation with a new plan to pump in billions of dollars of one-week loans for the first time.
As negotiations over an unprecedented U.S. bailout broke down, news that Washington Mutual, the largest U.S. savings and loan bank, was taken over by authorities and its deposits auctioned off only added to the thirst for liquidity.
"The market is just frozen at the moment," said Claudio Piron, a strategist at JPMorgan Chase Bank in Singapore.
"We are at such a point of absent liquidity that prices are beginning to fail in their usefulness as a signal. This in itself is disturbing."
In early London trade on Friday, the interbank cost of borrowing dollars for three months was indicated at the upper end of a wide range between 3.7 and 4.8 percent .
Overnight dollar funds remained in a broad 2.5-3.5 percent range in Asia, bankers in Singapore said. Short-term lending rates in local currencies jumped with Singapore dollar overnight rates at 2 percent, their highest since end-January.
Unease intensified after House Republicans balked at Treasury Secretary Henry Paulson's plan to buy bad debt from banks and instead floated an idea of their own for mortgage insurance, casting the whole bailout into doubt.
With commercial banks everywhere hoarding cash and reluctant to lend to each other, central banks were increasingly stepping in to fill the void.
The extremely tight money market conditions were exacerbated by banks hoarding short-term cash before closing their books on the third quarter next week.
EUROPE'S BIG THREE
Europe's big three central banks, the ECB, BoE and SNB stepped up their efforts to ease funding pressures over quarter-end.
The ECB said it would add $35 billion, the BoE promised $30 plus extra sterling resources and the SNB offered $9 billion.
"Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressure in funding markets," the ECB said in a statement.
On Thursday, three-month U.S. dollar LIBOR shot up nearly 30 basis points to 3.769 percent -- its highest level since January and nearly 2 percentage points above the expected federal funds rate in three months time.
That is double the levels seen in previous money market crunches since the credit crisis struck in August last year.
The Reserve Bank of Australia (RBA) launched its first ever repurchase operation in U.S. dollars and all $10 billion on offer was hungrily snapped up at 3.165 percent, well above the minimum bid rate of 2.35 percent.
The RBA established a U.S. dollar swap line with the Federal Reserve earlier in the week, aimed at meeting strong demand for U.S. dollars during Asian trading hours.
In South Korea, the Finance Ministry said it would inject $10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
South Korea's central bank said it would skip its weekly bond auction next Monday, a move widely seen as aimed at keeping the local money markets flush with liquidity.
The RBA and the Bank of Japan also kept adding extra cash to their own banking systems on Friday, while Vietnam lifted the rate it pays on bank reserves to reduce the cost of borrowing.
Yet these sums paled into insignificance compared to the U.S. Federal Reserve's largesse.
Figures released late Thursday showed U.S. institutions borrowed from the Fed $188 billion per day on average in the latest week, almost four times the previous record
With the renewed intensity of the financial crisis continuing to shred market confidence, the European Central Bank, Bank of England and Swiss National Bank stepped up their efforts to try and calm the situation with a new plan to pump in billions of dollars of one-week loans for the first time.
As negotiations over an unprecedented U.S. bailout broke down, news that Washington Mutual, the largest U.S. savings and loan bank, was taken over by authorities and its deposits auctioned off only added to the thirst for liquidity.
"The market is just frozen at the moment," said Claudio Piron, a strategist at JPMorgan Chase Bank in Singapore.
"We are at such a point of absent liquidity that prices are beginning to fail in their usefulness as a signal. This in itself is disturbing."
In early London trade on Friday, the interbank cost of borrowing dollars for three months was indicated at the upper end of a wide range between 3.7 and 4.8 percent .
Overnight dollar funds remained in a broad 2.5-3.5 percent range in Asia, bankers in Singapore said. Short-term lending rates in local currencies jumped with Singapore dollar overnight rates at 2 percent, their highest since end-January.
Unease intensified after House Republicans balked at Treasury Secretary Henry Paulson's plan to buy bad debt from banks and instead floated an idea of their own for mortgage insurance, casting the whole bailout into doubt.
With commercial banks everywhere hoarding cash and reluctant to lend to each other, central banks were increasingly stepping in to fill the void.
The extremely tight money market conditions were exacerbated by banks hoarding short-term cash before closing their books on the third quarter next week.
EUROPE'S BIG THREE
Europe's big three central banks, the ECB, BoE and SNB stepped up their efforts to ease funding pressures over quarter-end.
The ECB said it would add $35 billion, the BoE promised $30 plus extra sterling resources and the SNB offered $9 billion.
"Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressure in funding markets," the ECB said in a statement.
On Thursday, three-month U.S. dollar LIBOR shot up nearly 30 basis points to 3.769 percent -- its highest level since January and nearly 2 percentage points above the expected federal funds rate in three months time.
That is double the levels seen in previous money market crunches since the credit crisis struck in August last year.
The Reserve Bank of Australia (RBA) launched its first ever repurchase operation in U.S. dollars and all $10 billion on offer was hungrily snapped up at 3.165 percent, well above the minimum bid rate of 2.35 percent.
The RBA established a U.S. dollar swap line with the Federal Reserve earlier in the week, aimed at meeting strong demand for U.S. dollars during Asian trading hours.
In South Korea, the Finance Ministry said it would inject $10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
South Korea's central bank said it would skip its weekly bond auction next Monday, a move widely seen as aimed at keeping the local money markets flush with liquidity.
The RBA and the Bank of Japan also kept adding extra cash to their own banking systems on Friday, while Vietnam lifted the rate it pays on bank reserves to reduce the cost of borrowing.
Yet these sums paled into insignificance compared to the U.S. Federal Reserve's largesse.
Figures released late Thursday showed U.S. institutions borrowed from the Fed $188 billion per day on average in the latest week, almost four times the previous record
Comments