Futures Up on Massive Central Bank Injection

Global stock markets have stopped their slide on a massive central bank intervention. Liquidity continued to dry up yesterday, as global investors and banks fled to the safety of a limited supply of T-bills or curled up in the fetal position. The Fed, ECB, Bank of Japan, and other central banks responded overnight with a coordinated injection of $180 billion into the global financial system:

Bloomberg: The Federal Reserve, the European Central Bank and the Bank of Japan united with their counterparts around the world to offer an additional $180 billion to markets facing their worst crisis since the 1920s.

The Fed said it authorised central banks to auction the funds to “to address the continued elevated pressures in U.S. dollar short-term funding markets.” Policy makers “continue to work together closely and will take appropriate steps to address the ongoing pressures,” a joint release said. The Bank of England, the Bank of Canada and the Swiss National Bank also participated.

The Fed said the ECB has been authorised to double its existing limit to $110 billion from $55 billion and the Swiss central bank can offer an extra $15 billion. New swap facilities with the Bank of Japan, the Bank of England and the Bank of Canada amount to $60 billion, $40 billion and $10 billion, respectively.

The markets have since responded positive, with Asia recovering some of its overnight losses and Europe and US futures up:

Bloomberg: European stocks and U.S. futures rose after the Federal Reserve, the largest central banks in Europe and the Bank of Japan said they will pump $180 billion into the financial system. Asian shares pared their drop…

UBS AG and Barclays Plc climbed more than 7 per cent. Washington Mutual Inc. soared 14 per cent in German trading on speculation U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. may bid for parts of the largest U.S. savings and loan.

Europe’s Dow Jones Stoxx 600 Index increased 0.9 per cent to 260.24 at 9:39 a.m. in London, rebounding from its steepest three-day slide since 2002. Futures on the Standard & Poor’s 500 Index jumped 1.6 per cent. The MSCI Asia Pacific Index declined 1.9 per cent.

Fed Statement:

For release at 3:00 a.m. EDT
 

Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.

Federal Reserve Actions
The Federal Open Market Committee has authorised a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks. 

The FOMC has authorised increases in the existing swap lines with the ECB and the Swiss National Bank. These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $110 billion by the ECB, an increase of $55 billion, and up to $27 billion by the Swiss National Bank, an increase of $15 billion. 

In addition, new swap facilities have been authorised with the Bank of Japan, the Bank of England, and the Bank of Canada. These facilities will support the provision of U.S. dollar liquidity in amounts of up to $60 billion by the Bank of Japan, $40 billion by the Bank of England, and $10 billion by the Bank of Canada.  

All of these reciprocal currency arrangements have been authorised through January 30, 2009. 

Information on Related Actions Being Taken by Other Central Banks
Information on the actions that will be taken by other central banks is available at the following websites:

Bank of Canada 

Leaving the Board

Bank of England 

Leaving the Board

European Central Bank 

Leaving the Board

Bank of Japan 

Leaving the Board

Swiss National Bank 

Leaving the Board

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