Central banks act on credit fears

The Federal Reserve, European Central Bank and central banks from the UK, Canada and Switzerland are to jointly help banks deal with the credit crunch.

They have each announced that they will provide billions in loans to banks in order to lower interest rates and ease the availability of credit.

The move was coordinated by the US Federal Reserve, which has already cut interest rates three times this year.

It is a sign that despite rate cuts, banks are nervous about credit risks.

"This co-ordinated set of actions is a response to pressures in interbank markets, which have increased in recent weeks, reflecting sentiment about the global financial sector," a Bank of England spokesman said.

"The actions demonstrate that central banks are working together to try to forestall any prospective sharp tightening of credit conditions," he added.

BBC Business Editor Robert Peston said the action was without precedent and meant "the stakes are high".

There has been concern that the tightening credit conditions could push the US economy into recession, and cut world economic growth.

Central banks are worried that if banks are having trouble getting credit, they will raise rates they charge to customers, bringing spending among indebted populations to a standstill.

The move comes after interest rate cuts by both the Fed and the Bank of England had failed to cut the inter-bank interest rates which banks charge each other, which indicated that they were still reluctant to lend money.

"If they can count on central banks to lend to them, then they too may be prepared to start lending to each other again," observed Mr Peston.

The move means that central banks will help each other out in providing as much liquidity (cash) as they judge necessary to revive the inter-bank market.

"The Fed in conjunction with these other central banks is providing a ton of liquidity to the markets by year-end," said Greg Salvaggio at Tempus Consulting.

"It will work in the short term as another interest rate cut," he added.

But others warned that the move was also a sign of just how serious the crisis had become.

"This news just goes to illustrate again how serious the illiquidity issue in money markets has become," said Ian Kernohan of RLAM.

"This doesn't change my view that the UK economy will slow next year."

The banks will still have to provide collateral and meet certain conditions in order to get help from the central banks.

Banks judged to be in sound financial condition will be able to participate.

The central banks have judged that these auctions are necessary because banks are having such difficulties borrowing money from each other.

The banks have been reluctant to trust their fellow financial institutions because of uncertainty about their exposure to sub-prime loans.

As a result, interbank interest rates have risen, making intervention necessary.

The Bank of England will increase the amount offered in its next auction on 18 December from ?2.85bn to ?11.35bn, of which ?10bn will be offered for three months.

Crucially, it will accept a slightly wider range of assets as collateral for the loans.

The Bank of England held a similar auction for three-month loans in September, but there were no bidders, because banks were worried that the stigma attached to the auction would reduce confidence in them so soon after the run on Northern Rock.

That auction had a punitive minimum rate set at 1% above the Bank of England's base rate, whereas the new auctions do not have a minimum rate.

UAE, Afghanistan buy Turkmen-made gasoline
UAE, Afghanistan buy Turkmen-made gasoline
74 more coronavirus patients die in Moscow in past day
74 more coronavirus patients die in Moscow in past day
Over 5,500 patients recover from coronavirus in Moscow in the past day
Over 5,500 patients recover from coronavirus in Moscow in the past day
Loading Bars
Latest
Uzbekistan boosts import of grain and legumes from Turkey
Britain bans new Huawei 5G kit installation from September 2021
Azerbaijan hikes percentage of cars import from Turkey in October
Iran's Karun Petrochemical Company discloses amount of its savings
Energy Minister: One of key goals is to ensure effective use of resources in Azerbaijan's liberated lands (INTERVIEW)
Azerbaijani currency rates for Nov. 30
Number of patients recovered from COVID-19 in Uzbekistan passes 70,000
UAE, Afghanistan buy Turkmen-made gasoline
Design work to build new highway in liberated Azerbaijani territories starts (Exclusive)
Iranian currency rates for November 30
Oil prices slip in cautious trade ahead of OPEC+ meet
Azerbaijan's ANAMA continues demining road to liberated Sugovushan settlement (PHOTOS)
Iran boosts exports via Kerman Province
Iran to prepare agricultural plan for Gilan and Mazandaran provinces
Azerbaijan’s liberation of its territories to revive historical Silk Road – Turkish Grand National Assembly
Azerbaijan’s Aghdam sometimes called "Hiroshima of Caucasus" - France-24 (VIDEO)
Brazil surpasses 6.3 million COVID-19 cases
Malaria death toll to exceed COVID-19's in sub-Saharan Africa: WHO
New Zealand regulator charges 13 parties over White Island eruption tragedy
Daily COVID-19 case count drops to 794 in Kazakhstan
Solar panel power plant launched in Iran's Fars Province
Hamilton wins F1 Bahrain Grand Prix as Grosjean escapes horror crash
Biden to receive first presidential intelligence briefing on Monday
Jennifer Psaki to be Joe Biden’s White House press secretary
Expenses on construction of enterprises in Iran’s Tehran Province drops
Trump senior aide Kushner and team heading to Saudi Arabia, Qatar
France's new COVID-19 cases, hospitalizations continue to fall
Israeli cabinet approves aviation, science cooperation deals with UAE
Africa's confirmed COVID-19 cases pass 2.15 mln mark: Africa CDC
74 more coronavirus patients die in Moscow in past day
Israel launches national plan to strengthen industry amid COVID-19
OPEC+ monitoring committee meeting yields no consensus
Weekly review of Azerbaijan's transport sector
Several Turkish provinces revert preschools to remote teaching over pandemic
UK records another 12,155 coronavirus cases with 215 deaths
Certain investments to be made into industrial parks of Iran’s Qazvin Province
Azerbaijani ministries, AzerGold company hold landscaping campaign on Chovdar field
Rocket hits small oil refinery in Iraq's north, forcing shutdown: officials
Jeyhun Bayramov expresses condolences to his Iranian counterpart
Number of COVID-2019 cases across globe up by over 564,000 in past day
Employment in Iran's Bushehr Province enlarges
Average yield of tobacco in Azerbaijan in 2020 exceeds last year volume
Iranian Energy Exchange announces products to be on sale November 30
Weekly review of events in financial market of Azerbaijan
Norway calls on all political parties to enable new, more diverse parliament in Georgia
Turkey condemns killing of key Iranian nuclear scientist as act of 'terrorism'
Argentine prosecutors investigate death of soccer star Maradona
Performances results of Azerbaijani gymnasts at European Championships in rhythmic gymnastics unveiled
Iran reveals details of exports through Bandar Lengeh County
Projects within Industrialization Map framework being implemented in Kazakhstan's Akmola
Overview of events in agricultural sector of Azerbaijan for last week of November
Activities on provision of Russian peacekeeping contingent held (PHOTO/VIDEO)
Iran boosts manufacturing of passenger cars
UAE cabinet approves new cybersecurity body, climate change envoy
Geostat reveals volume of ferroalloys exported by Georgia to Turkey
Bahar Azadi gold coin price still falling in Iran
Kazakhstan continues introduction of mobile diagnostic tools in railway sector
Azerbaijan, Uzbekistan discuss possibilities of attracting investors to Azerbaijani territories liberated from occupation
Britain expects 'very significant' week for Brexit talks as clock ticks down
Iran declares cargo transportation from Sistan and Baluchestan Province
Death toll from COVID-19 tops 172,000 in Brazil
Chinese companies to process Uzbek garlic for further export to US and European countries
Turkey's export of grain, legumes to France declines
Iran reveals its COVID-19 data for November 29
Details of Iran’s trade turnover announced
EU aims to support Georgia in its efforts to reform electricity market
Azerbaijan confirms 4,170 new COVID-19 cases, 1,985 recoveries
5.5-magnitude quake hits Vanuatu
Azersu LLC announces tender for purchase of equipment for laboratory
Kazakhstan's import of Turkish cement up
Azerbaijan shows footage of Aghdam's Shahbuldag village (PHOTO/VIDEO)
Expenses on construction of enterprises in Iran’s Isfahan Province increases
Number of enterprises launched in Iran's Ilam Province shrinks
Turkmengas opens tender for maintenance of gas turbine generators
At least 30 police killed, over 20 wounded in suicide car bomb explosion in E. Afghanistan
Georgia reports 4 426 new coronavirus cases, 3 721 recoveries, 35 deaths
Over 5,500 patients recover from coronavirus in Moscow in the past day
Azerbaijan shows footage of liberated from occupation villages of Kalbajar region (PHOTO/VIDEO)
China increases import of Turkish cars
Employment in Iran's Alborz Province declines
The President of Turkmenistan receives representative of medical community of Germany
S. Korea reports 450 more COVID-19 cases, 33,824 in total
Azerbaijan's turnover on payment cards in 10M2020 up
Inter-Agency Coordination Council discusses enforcement of Covid restrictions
Azerbaijan has ample opportunities and potential for artificial intelligence dev't
Trump may announce plans for 2024 presidential race during Biden’s inauguration
826 more coronavirus cases recorded in Kazakhstan over 24 hours
France sees further fall in COVID-19 hospitalizations as lockdown exit starts
Turkey's Temsa makes 1st electric bus exports to Sweden
Iran registers monthly positive trade balance
Scottish dev’t agency eyes establishing co-op with companies in Uzbekistan’s Karakalpakstan
Croatian PM in self-quarantine after wife contracts COVID-19
UK records another 15,871 coronavirus cases with 479 deaths
Some 46,000 people gather in Paris to protest against security bill
Kazakhstan to modify large energy saving projects on railways
Severe fire danger for Australia as temperatures smash records
Dozens of Boko Haram militants killed in Nigeria airstrikes
Pope installs new cardinals, including first African-American
WHO reports new daily record high of over 747,000 COVID-19 cases
UK police arrest 155 in anti-lockdown protests in London
All news