Federal Reserve Chairman Ben Bernanke (Image by Getty Images via @daylife)
Wednesday, November 30, 2011
Wall Street enjoyed a big jump Wednesday morning, after a coordinated action by central banks around the world to provide more liquidity to the global financial system.
The U.S. Federal Reserve, after a similar effort in September, will “lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points.”
Wednesday’s move from the Fed was matched by corresponding actions from the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank. The new pricing applies to operations conducted as of Dec. 5, and the authorization of the swap arrangements has been extended to Feb. 13. (Read the FOMC press release here.)
While the effort to provide more liquidity may temporarily soothe the symptoms of Europe’s debt crisis and allow financial institutions easier access to funding, it does little to address the underlying roots of overburdened governments that need to be propped up while they drastically cut spending.
Efforts to tackle the crucial issues at the heart of the crisis continue to move in fits and starts. The European Financial Stability Fund (EFSF) announced new leverage tools geared at increasing its lending capacity on Wednesday, but it still remains to be seen where the additional financing will come from for the public-private special purpose vehicles the EFSF intends to use to provide funding to sovereign governments through primary and secondary bond market purchases. That funding could in turn be used to recapitalize European banks that are at risk of crumbling due to their exposure to the region’s shaky credits.
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