World Central Banks Unite to Ease Credit Strain

Katrina Shankle/Mon. March 17, 2008/ 7:27 p.m./ Global Economics

The U.S. Federal Reserve and four other banks are teaming up to get lots of money flowing into cash starved credit markets. What does this mean? Financial firms will have home mortgage backed securities as central bank loan collateral.

The financial markets showed key signs that this was viewed as a wise move to be made. On March 12, 2008 when this article was written, the value of the dollar had increased, stocks surged, and bonds fell. In fact, the Dow Jones industrials closed 3.6 percent higher.

The U.S. Federal Reserve teamed with the Bank of Canada, the Bank of England, the European Central Bank, and the Swiss National Bank to launch a collective effort to boost liquidity.

While Wall Street investors are singing this new effort's praises, one thing remains clear to them: time for the de-leveraging of billions of dollars of loans globally is greatly needed.

A particular concern is that tightening credit conditions from the sub-prime mortgage disaster in the United States will put a dent in the amount of money flowing to the people and businesses powering the global economy.

The U.S. Federal Reserve has also expanded its securities lending program by offering $200 billion to primary dealers. It's secured for twenty-eight days and the Federal Reserve states they can increase the size of the program if such an action is needed. The plan also expanded the types of securities that can be used for collateral for loans. Essentially the plan is allowing banks to exchange the mortgage notes for the much easier to sell government securities.

http://abcnews.go.com/Business/wireStory?id=4435173