Cash injection as central banks try to ease crisis
Sep 19 2008 by Iain Laing, The Journal
CENTRAL banks around the world yesterday made their latest attempt to ease the crisis gripping the sector with a £98.7bn cash injection.
The US Federal Reserve is pumping the money into overnight dollar markets after lending between banks fearful of losses virtually ground to a halt in a week of turmoil.
The Fed is using the Bank of England and the European Central Bank as well as central banks in Switzerland, Japan and Canada as conduits for the cash.
In the wake of the Lehman Brothers bankruptcy and rescue takeover of Merrill Lynch, financial institutions have been gripped with fear.
Inter-bank dollar lending rates soared from 2.14% on Friday to more than 5% yesterday following the turmoil.
The six banks said in a joint statement: “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 will continue to work together closely and will take appropriate steps to address the ongoing pressures.”
This week the Bank of England has already pumped an extra £25bn into money markets and it repeated the exercise yesterday.
It has also extended its Special Liquidity Scheme, which allows banks to strengthen their balance sheets by swapping riskier assets for Treasury bonds, until January 30. The scheme had been due to close on October 21, but the Bank made the U-turn “in view of the current disorderly market conditions”.
Prime Minister Gordon Brown, who gave the Lloyds TSB-HBOS deal competition clearance during a meeting with Lloyds TSB chairman Sir Victor Blank on Monday, said yesterday the deal was needed to help shore up the UK financial system.
HBOS suffered a run on its shares this week as fears over its funding position grew in the wake of Monday’s collapse of US investment bank Lehman Brothers.
But the Lloyds TSB-HBOS tie-up has prompted fears for thousands of the 145,000 staff employed by both firms, with promises from Lloyds of “significant cost savings” when the networks are combined.
There is speculation that as many as 40,000 job losses could follow, although this figure was described as being “on the high side” by Lloyds TSB boss Eric Daniels.
The takeover has been welcomed by UK financial regulators, including the Bank of England, although it is still subject to shareholder approval.
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