Central Banks Funnel Additional Liquidity In Money Markets

September 26, 2008 6:09 a.m. EST

Washington, D.C. (AHN) - In a fresh attempt to further stabilize global money markets, the U.S. Federal Reserve authorized Friday to inject up to $290 billion.

The Federal Reserve has set up swap lines (temporary reciprocal currency arrangements) in coordination with the European Central Bank, the Bank of England and the Swiss National Bank.

In the joint effort by the world's central bank, they will provide U.S. dollar liquidity with a one-week maturity, which is expected to curb the funding strain by the end of the quarter.

"Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressures in funding markets," the Fed said in a statement.

The decision was taken after the U.S. government and Congressional negotiators ended talks for the night on their decision to pump $700 billions into the financial system and transform the way Wall Street is regulated.

The Federal Open Market Committee has authorized the step to increase capacity of funds available to improve the liquidity conditions in global financial markets.

The existing swap lines with the ECB and the Swiss National Bank are being increased by $10 billion and $3 billion, respectively, according to the Fed on Friday.

These changes represent a $13 billion addition to the $277 billion previously authorized temporary reciprocal currency arrangements with other central banks.

"These expanded facilities will now support the provision of U.S. dollar liquidity in amounts of up to $120 billion by the ECB and up to $30 billion by the Swiss National Bank," the Fed said in the statement.

The Fed authorized the "reciprocal currency arrangements" through Jan. 30, 2009.