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5 central Banks provide dollar loans, easing worries over eurozone banks
FRANKFURT, Germany (AP) ' Five of the world's top central banks moved jointly Thursday to provide unlimited dollar loans to banks, boosting confidence in the eurozone's financial sector, which had been targeted for days by investors worried about banks' exposure to the debt crisis.
The European Central Bank said it will coordinate with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to offer three-month dollar loans to banks through the end of this year.
The move is the latest step by central banks around the world to help prevent Europe's debt crisis from derailing the global economy's rebound from recession. The U.S. Federal Reserve in 2010 reopened a program to ship billions of dollars overseas in a bid to pump more short-term cash into the financial system and make sure banks have the dollars they need.
Banking stocks have been hurt recently on fears that they were having trouble getting short-term loans from each other, the so-called interbank lending market. The central bank loans would relieve that pressure.
"This sort of liquidity flood implies that current funding pressures, and in the event of a Greek default some even larger pressures, are threatening to completely destabilize western financial markets," said Marc Ostwald, strategist at Monument Securities in London.
Markets and the euro currency, which were already higher on the day, were buoyed by the news. The 17-nation currency surged to a daily high of $1.3934 before retreating slightly to $1.3887.
Bank stocks rallied, with BNP Paribas in Paris up 11.3 percent and Societe Generale up 5.4 percent. Traders had singled them out in recent days as being particularly exposed to the bad debt of Greece.
When a bank is rumored to be in danger of suffering large losses, other banks will stop lending to it for fear of not getting their money back. That's what happened during the 2008 credit crunch.
The ECB said in its statement that the tenders will be conducted in October, November and December.