Central banks across the world have been forced to meet a desperate demand for cash both in their own currencies and the US dollar, as European stock markets opened down this morning, following depressed trading in Asia.
The failure of Washington Mutual Savings and Loans Bank, and the stalled bail-out plan, has only added to investors’ thirst for liquidity.
The US Federal Reserve, the European Central Bank, the Bank of England and the Swiss national bank have all injected money.
Commercial banks are hoarding cash ahead of third quarter closing next week
and still reluctant to lend to each other, forcing central banks to fill the void.
The ECB has loaned 24 billion euros to the money markets for a week. The Bank of England put in 20 billion. The Swiss National bank contributed six billion euros for a week.
The US Federal Reserve recently, temporarily, expanded its facility to “swap” money between central banks. The Bank of England, the Bank of Canada and the Bank of Japan are now included in that arrangement.