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This morning the Fed issued a Press Release On Unlimited
Borrowing.
In order to provide broad access to liquidity and funding to
financial institutions, the Bank of England (BoE), the European Central Bank
(ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank (SNB)
are jointly announcing further measures to improve liquidity in short-term U.S.
dollar funding markets.
The BoE, ECB, and SNB will conduct tenders of
U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest
rates for full allotment. Funds will be provided at a fixed interest rate, set
in advance of each operation. Counterparties in these operations will be able to
borrow any amount they wish against the appropriate collateral in each
jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap
lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be
increased to accommodate whatever quantity of U.S. dollar funding is demanded.
The Bank of Japan will be considering the introduction of similar
measures.
Central banks will continue to work together and are prepared
to take whatever measures are necessary to provide sufficient liquidity in
short-term funding markets.
Federal Reserve Actions
To assist in
the expansion of these operations, the Federal Open Market Committee has
authorized increases in the sizes of its temporary swap facilities with the BoE,
the ECB, and the SNB, so that these central banks can provide U.S. dollar
funding in quantities sufficient to meet demand.
These arrangements have
been authorized through April 30, 2009.
Information on Related Actions
Being Taken by Other Central Banks
Information on the actions that will be
taken by the other central banks is available at the following websites:
On October 9th I wrote that You Cannot Patch a Busted Dam With
Water.
Nonetheless, it seems the Fed is determined to try, and I even
have a picture to prove it. Photographer Keith Taylor was present at the Fed's
announcement this morning and captured this rather amazing image of the
event.
Nationalization of banks and announcements of unlimited
liquidity measures are not good things. However, but we have seen this playbook
before. The futures are jumping once again during options expiration
week.
It is likely the move off Friday's low started wave 4 of 3 up.
Please see S&P 500 Crash Count for a
reference.Originally posted at: http://globaleconomicanalysis.blogspot.com/
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