The European Central Bank is to take joint action with the US Federal Reserve and other institutions to offer short-term funding to the money markets to help ease a global credit squeeze. The announcement sent world stock markets higher this afternoon after earlier losses.
In order to 'address elevated pressures in short term funding markets,' the ECB said the Eurosystem of banks planned two dollar tenders as the Fed would provide up to $20 billion (€13.6 billion).
The Bank of England, Bank of Canada and Swiss National Bank are also involved in the initiative. The move came a day after the Fed cut its key short-term federal funds rate to 4.25%.
Central banks have repeatedly made massive amounts of cash available to commercial banks and other institutional lenders to prevent a freeze of global credit markets on which the international economy depends.
Following the collapse of the US market for high risk mortgages, banks became wary of lending to one another in fear that borrowers might be exposed to huge losses in connection with the sub-prime meltdown.
