<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Central banks pump in cash as credit freezes
</TR><!-- headline one : end --><TR>BOE, Swiss National and European Central Bank scramble to ease funding pressure </TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->FRANKFURT: Central banks across the world scrambled to meet a desperate demand for cash yesterday, as the United States authorities closed a bank and the White House's US$700 billion (S$1 trillion) bailout plan ran into trouble.
With the renewed intensity of the financial crisis continuing to shred market confidence, the European Central Bank (ECB), Bank of England (BOE) and Swiss National Bank (SNB) stepped up their efforts to try and calm the situation with a new plan to pump in billions of dollars of one-week loans for the first time.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>DISTURBING SIGN
'The market is just frozen at the moment.
We are at such a point of absent liquidity that prices are beginning to fail in their usefulness as a signal.
</TD></TR></TBODY></TABLE>As negotiations over an unprecedented US bailout broke down, news that Washington Mutual, the largest US savings and loan bank, was taken over by the authorities and its deposits auctioned off only added to the thirst for liquidity.
'The market is just frozen at the moment,' said Mr Claudio Piron, a strategist at JPMorgan Chase Bank in Singapore.
'We are at such a point of absent liquidity that prices are beginning to fail in their usefulness as a signal. This in itself is disturbing.'
In early London trade yesterday, the interbank cost of borrowing dollars for three months was indicated at the upper end of a wide range between 3.7 and 4.8 per cent.
Overnight dollar funds remained in a broad 2.5 to 3.5 per cent range in Asia, bankers in Singapore said. Short-term lending rates in local currencies jumped with Singapore dollar overnight rates at 2 per cent, their highest since end-January.
Unease intensified after House Republicans baulked at Treasury Secretary Henry Paulson's plan to buy bad debt from banks and instead floated an idea of their own for mortgage insurance, casting the whole bailout into doubt.
With commercial banks everywhere hoarding cash and reluctant to lend to one another, central banks were increasingly stepping in to fill the void.
The extremely tight money market conditions were exacerbated by banks hoarding short-term cash before closing their books on the third quarter next week.
Europe's big three central banks, the ECB, BOE and SNB, stepped up their efforts to ease funding pressures over the quarter-end.
The ECB said it would add US$35billion, the BOE promised US$30 billion plus extra sterling resources and the SNB offered US$9 billion.
'Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressure in funding markets,' the ECB said in a statement.
On Thursday, the three-month US dollar London Interbank Offered Rate, or Libor, shot up nearly 30 basis points to 3.769 per cent - its highest level since January and nearly 2 percentage points above the expected federal funds rate in three months' time.
That is double the levels seen in previous money market crunches since the credit crisis struck in August last year.
The Reserve Bank of Australia (RBA) launched its first repurchase operation in US dollars and all US$10 billion on offer was hungrily snapped up at 3.165 per cent, well above the minimum bid rate of 2.35 per cent.
The RBA established a US dollar swap line with the Federal Reserve earlier in the week, aimed at meeting strong demand for US dollars during Asian trading hours.
In South Korea, the Finance Ministry said it would inject US$10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
South Korea's central bank said it would skip its weekly bond auction next Monday, a move widely seen as aimed at keeping the local money markets flush with liquidity.
The RBA and the Bank of Japan also kept adding extra cash to their own banking systems yesterday, while Vietnam lifted the rate it pays on bank reserves to reduce the cost of borrowing. REUTERS
</TR><!-- headline one : end --><TR>BOE, Swiss National and European Central Bank scramble to ease funding pressure </TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->FRANKFURT: Central banks across the world scrambled to meet a desperate demand for cash yesterday, as the United States authorities closed a bank and the White House's US$700 billion (S$1 trillion) bailout plan ran into trouble.
With the renewed intensity of the financial crisis continuing to shred market confidence, the European Central Bank (ECB), Bank of England (BOE) and Swiss National Bank (SNB) stepped up their efforts to try and calm the situation with a new plan to pump in billions of dollars of one-week loans for the first time.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story --><STYLE type=text/css> #related .quote {background-color:#E7F7FF; padding:8px;margin:0px 0px 5px 0px;} #related .quote .headline {font-family: Verdana, Arial, Helvetica, sans-serif; font-size:10px;font-weight:bold; border-bottom:3px double #007BFF; color:#036; text-transform:uppercase; padding-bottom:5px;} #related .quote .text {font-size:11px;color:#036;padding:5px 0px;} </STYLE>DISTURBING SIGN
'The market is just frozen at the moment.
We are at such a point of absent liquidity that prices are beginning to fail in their usefulness as a signal.
</TD></TR></TBODY></TABLE>As negotiations over an unprecedented US bailout broke down, news that Washington Mutual, the largest US savings and loan bank, was taken over by the authorities and its deposits auctioned off only added to the thirst for liquidity.
'The market is just frozen at the moment,' said Mr Claudio Piron, a strategist at JPMorgan Chase Bank in Singapore.
'We are at such a point of absent liquidity that prices are beginning to fail in their usefulness as a signal. This in itself is disturbing.'
In early London trade yesterday, the interbank cost of borrowing dollars for three months was indicated at the upper end of a wide range between 3.7 and 4.8 per cent.
Overnight dollar funds remained in a broad 2.5 to 3.5 per cent range in Asia, bankers in Singapore said. Short-term lending rates in local currencies jumped with Singapore dollar overnight rates at 2 per cent, their highest since end-January.
Unease intensified after House Republicans baulked at Treasury Secretary Henry Paulson's plan to buy bad debt from banks and instead floated an idea of their own for mortgage insurance, casting the whole bailout into doubt.
With commercial banks everywhere hoarding cash and reluctant to lend to one another, central banks were increasingly stepping in to fill the void.
The extremely tight money market conditions were exacerbated by banks hoarding short-term cash before closing their books on the third quarter next week.
Europe's big three central banks, the ECB, BOE and SNB, stepped up their efforts to ease funding pressures over the quarter-end.
The ECB said it would add US$35billion, the BOE promised US$30 billion plus extra sterling resources and the SNB offered US$9 billion.
'Central banks continue to work together closely and are prepared to take further steps as needed to address the ongoing pressure in funding markets,' the ECB said in a statement.
On Thursday, the three-month US dollar London Interbank Offered Rate, or Libor, shot up nearly 30 basis points to 3.769 per cent - its highest level since January and nearly 2 percentage points above the expected federal funds rate in three months' time.
That is double the levels seen in previous money market crunches since the credit crisis struck in August last year.
The Reserve Bank of Australia (RBA) launched its first repurchase operation in US dollars and all US$10 billion on offer was hungrily snapped up at 3.165 per cent, well above the minimum bid rate of 2.35 per cent.
The RBA established a US dollar swap line with the Federal Reserve earlier in the week, aimed at meeting strong demand for US dollars during Asian trading hours.
In South Korea, the Finance Ministry said it would inject US$10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
South Korea's central bank said it would skip its weekly bond auction next Monday, a move widely seen as aimed at keeping the local money markets flush with liquidity.
The RBA and the Bank of Japan also kept adding extra cash to their own banking systems yesterday, while Vietnam lifted the rate it pays on bank reserves to reduce the cost of borrowing. REUTERS
