Photo: Wikimedia Commons
ORIGINAL (3:10 PM ET): Markets are shooting higher after rumours from G20 sources that central banks are planning for coordinated liquidity measures, according to Reuters.A senior G20 source reportedly told Reuters, “”The central banks are preparing for coordinated action to provide liquidity,” in the event that the Greek election wreak havoc in the markets.
Late last month, Business Insider first reported that rumours of coordinated central bank action had been circulating among traders and their sources, leading one analyst to assure us that such a liquidity-providing move was “a lock.”
While these latest reports are nothing more than rumours, it would appear that pressure for coordinated central bank action—likely through an expansion of the dollar swap agreements put in place last November—is mounting. Such action would make interbank lending markets more liquid, amid concerns that certain EU banks face funding problems.
UPDATE (3:26 PM ET): Now we’re hearing new rumours about an emergency G7 meeting in Mexico on Monday or Tuesday from Reuters. We’re still not sure exactly what this means, but this could be related to some of the latest rumours about coordinated action.
Markets have fallen back some since the initial announcement we wrote about above. A look at the Dow, which is now up 125 points:
Photo: Yahoo Finance
UPDATE II (3:46 PM ET): The latest headline is that the Bank of England and the UK Treasury will take coordinated action to boost credit, according to Dow Jones.
In particular, the BOE will begin operating some kind of untapped emergency liquidity facility for banks that become illiquid. That would provide struggling banks with easy access to cheap cash, though headlines out of Dow Jones indicate that this lending will likely be contingent upon lending to U.K. households and businesses.
Taken directly after previous headlines, this appears to indicate that there is truth to earlier rumours. However, it remains unclear if this action is unilateral or if other central banks will soon follow suit with similar procedures.
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