Central banks react to market turmoil

Central banks react to market turmoil
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World central banks have attempted to calm market fears after the collapse of Wall Street giant Lehman Brothers. The Bank of Japan has injected almost 17 billion euros worth of liquidity into the system after similar steps by its US and European counterparts.

There were also fears that AIG, once the world’s largest insurer, could also face collapse. The State of New York has announced a multi-billion euro package to bail out the firm.

Yesterday, American’s fourth largest investment bank Lehman Brothers filed for bankruptcy. But, Lehman is not the only victim, with the Bank of America also announcing it is to purchase Merrill Lynch. The pair’s demise is expected to lead to thousands of job losses on Wall Street. With global markets still reeling from the news, the US Treasury Secretary Henry Paulson gave assurances the world financial system remains sound:

‘‘Well, as you know, we’re working through a difficult period in our financial markets right now as we work off some of the past excesses. ‘‘But the American people can remain confident in the soundness and the resilience of our financial system,’‘ he said.

The US Federal Reserve has recently taken steps to increase liquidity to financial institutions.

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