Fed comes to rescue
The Federal Reserve extended its emergency lending program yesterday in an effort to settle turbulent money markets, as the European Central Bank and Swiss National Bank followed suit.
The Fed said that the length of the program, under which investment institutions can turn to the central bank for cash, would be extended until January 30.
The period was originally due to end by mid-September, but has been lengthened because the credit crunch has lasted longer than expected.
In a separate program, the Fed will also allow commercial banks to bid for cash loans of 84 days, on top of the 24-day loans currently available.
The extension was offered “in light of continued fragile circumstances in financial markets,” said the Fed, and would be withdrawn when market conditions were “no longer unusual and exigent.”
The ECB and Swiss National Bank told the Fed they would also offer their banks 84-day cash loans, prompting the Fed to raise its credit line with the ECB by $5bn (£2.5bn) to $55bn.
The ECB’s extended loans will be available from 8 August and the SNB’s from 12 August.
The emergency loan provisions for investment houses were introduced after a run on US investment bank Bear Stearns brought it to the brink of bankruptcy, prompting concerns that other Wall Street firms could fail. The program allows investment institutions to bid on Treasury securities, using mortgage-backed securities, as collateral.