Rescue me

15 September 2011 By Neil Unmack, George Hay Follow @unmack1

The Fed, ECB and other major central banks will give embattled euro zone lenders a boost by offering longer-term dollars. The move should ease fears of a funding crisis in the money markets. But it mustn’t incite banks to delay the restructuring of their weak funding profiles.

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The European Central Bank, Bank of England, Swiss National Bank, Bank of Japan and Federal Reserve announced that they would provide unlimited three-month dollar funds at three auctions in October, November and December.

The facilities are made under an arrangement between the Federal Reserve and the four non-U.S. banks whereby the Fed provides dollars in exchange for local currency. The four non-U.S. central banks can then lend those funds to commercial banks.

It is the third time in the last three years the central banks have introduced such longer-term dollar funding to make it easier for non-U.S. banks to raise dollar funding.

Euro zone banks have struggled to raise funds from U.S. money market investors in recent weeks as the euro zone sovereign crisis escalated.

The interest rate charged on the loans has not been disclosed.

Context News

It is the third time in the last three years the central banks have introduced such longer-term dollar funding to make it easier for non-U.S. banks to raise dollar funding.

Euro zone banks have struggled to raise funds from U.S. money market investors in recent weeks as the euro zone sovereign crisis escalated.

The interest rate charged on the loans has not been disclosed.

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