Thursday, August 09, 2007

Central Banks Add Liquidity

by Bill McBride on 8/09/2007 12:02:00 PM

Quote added (hat tip dis):

So, today the monetary base in the North Atlantic economies is 7% higher than it was yesterday--an annualized growth rate of 2100% per year.

This is indeed a significant liquidity event...

Professor DeLong, August 9, 2007
From the WSJ: Fed Enters Market To Tamp Down Rate
The scramble for liquidity in Europe spilled over into the U.S. The federal funds rate, the rate at which banks make overnight loans to each other, was between 5.375% and 5.5% in early trading in New York, analysts said, well above the Federal Reserve's 5.25% target.

The Fed, in an effort to get the funds rate back down and meet the spike in demand for cash, lent $24 billion through its open market operations. It did so through two operations: A 14 day "repo," the name for an operation that adds reserves to the banking system and alleviates upward pressure on rates, and an additional $12 billion through an overnight repo. It is common for the Fed to do the two types of operations, but analysts said the amount added was relatively high, exceeding what it would have injected to cover expiring repos.
From the WSJ: ECB Injects €94.8 Billion To Ease Jittery Markets
Mounting fears that the U.S. subprime crisis is spreading to Europe prompted the European Central Bank to loan €94.841 billion ($130.2 billion) in emergency funds to European banks this morning, the first time it has taken this type of action since just after the terrorist attacks of Sept. 11, 2001.

Concern that European banks face growing losses on investments linked to U.S. mortgages shot the euro zone's overnight borrowing rates to 4.7% today, their highest since October 2001 and well above the ECB's benchmark financing rate of 4%.
From Bloomberg: Bank of Canada Says It Will `Provide Liquidity' to Aid Markets
The Bank of Canada said it will ``provide liquidity'' to support financial markets, the same day the European Central Bank lent money to ease a credit crunch that started with the U.S. subprime mortgage collapse.

The Ottawa-based central bank will ``support the stability of the Canadian financial system and the continued functioning of financial markets,'' ...