The Canadian Press
September 18, 2008
Global banks set to inject up to a quarter of a trillion dollars into financial institutions
OTTAWA—The Bank of Canada is joining the U.S. Federal Reserve and central bankers in Europe and Japan to shovel up to a quarter of a trillion dollars into global money markets as they strive to restore confidence.
In a statement issued at 3 a.m. ET, the Bank of Canada said it is acting with the Bank of England, the European Central Bank, the Federal Reserve, the Bank of Japan and the Swiss National Bank with “co-ordinated measures designed to address the continued elevated pressures in U.S.-dollar short-term funding markets.”
In particular, the Bank of Canada and the Federal Reserve have established a US$10-billion reciprocal currency arrangement to provide U.S.-dollar liquidity in Canada.
This could be drawn on by the Bank of Canada to assist any Canadian financial institutions that run short of ready cash.
“The bank judges that it is not necessary for it to draw on this swap facility at this time, but that it is prudent to have the agreement in place,” the statement said.
“The Bank of Canada continues to closely monitor global market developments and remains committed to providing liquidity as required to support the stability of the Canadian financial system and the functioning of financial markets.”
The central banks “continue to work together closely and will take appropriate steps to address the ongoing pressures,” it added, echoing statements from the other central banks.
Credit market pressured have intensified since the weekend collapse of Lehman Brothers Holdings Inc., and central banks have already injected billions of dollars this week in an effort to keep banks from hoarding cash.
The Fed said it has authorized swap lines similar to the Canadian arrangement totalling US$247 billion: $110 billion with the ECB, $60 billion with the Bank of Japan, $40 billion with the Bank of England and US$27 billion with the Swiss National Bank.
This represents a $180-billion expansion of the swap facilities the Fed previously had in place with the other central banks.
The Bank of Canada’s involvement followed a statement Wednesday evening by Finance Minister Jim Flaherty emphasizing “that Canada’s banking and insurance industries are well capitalized and our financial system is sound.”
Flaherty noted that Canada, as an open trading economy, is not immune to international financial stresses but “continues to weather the global financial market turbulence better than many other countries.”
The ECB, which oversees monetary policy in the 15 countries using the euro, said in a statement similar to that of the Bank of Canada that the “measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets.”
The Federal Reserve has pumped US$70 billion into the American financial system, and the U.S. Treasury Department said Wednesday that to help the Fed cope with unprecedented borrowing needs it will begin auctioning debt for the central bank.
The European Central Bank said it was making as much as $40 billion available immediately to cash-starved banks, and “overall, the dollar funding operations conducted by the Eurosystem could reach an outstanding amount of $110 billion.”
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