Some of the world's big central banks have announced new measures to make US dollars more easily available to European banks.
The European Central Bank, the US Federal Reserve and the Swiss National Bank are involved in the plan. Starting on August 8, the ECB will conduct '84-day operations under the Term Auction Facility, while continuing to conduct operations with a maturity of 28 days,' a statement said.
This means US dollars will be made available to European banks over a longer period than has been the case until now.
As a result of the international financial crisis, the Fed, ECB and Swiss National Bank agreed to a currency swap that would let the ECB and SNB provide dollars directly to European banks.
Many banks had invested heavily in securities backed by US mortgages, and when the market for those assets dried up, the banks found it hard to obtain the dollar funding needed to keep their operations afloat.
The 28-day period is being extended since it has become clear that banks need the cash for longer periods to calm the market's still troubled waters. The total amount of dollars available, $50 billion (€32 billion), will remain the same, with the exception of a temporary increase to $55 billion in the first phase of the scheme.
Meanwhile, the Fed has also extended its emergency lending programme for investment firms to January 2009. This is aimed at keeping credit flowing in the financial system. The Fed said it took the action 'in light of continued fragile circumstances in financial markets'.
The move by the central bank will continue past the original September expiration date under a programme aimed at helping liquidity to flow to so-called primary dealers, big investments firms which have a relationship with the Fed. The scheme was implemented after the collapse of Wall Street giant Bear Stearns, which faced a cash squeeze after being unable to borrow in private markets to fund operations.
