The central bank of the UAE is providing an emergency lending facility to banks in the region that may be hit by a possible default by Dubai World on its debt obligations.
The point, it seems, is to stem any “run on the bank” that may result from depositors panicking over banks striken by exposure to Dubai World.
This move indicates that the chances of a Abu Dhabi bailout of Dubai World are diminishing. Instead, it seems the UAE has chosen to try to ameliorate the effects of a Dubai World default instead of preventing the default altogether.
Here’s the AP on this morning’s move:
The United Arab Emirates’ central bank is saying it “stands behind” local and foreign banks operating in the country, offering them access to money in a sign the Gulf Arab nation’s federal government is racing to curtail investor fears over Dubai’s crushing debt.
The UAE’s official WAM news agency said Sunday the central bank issued a notice to Emirati banks and foreign banks with branches in the country saying it would make available “a special additional liquidity facility linked to their current accounts at the central bank.”
The statement comes just days after world markets reacted with shock to news that conglomerate Dubai World wanted creditors to give it a six-month extension on paying some of its $60 billion in debts.