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15 September 2011

FT: Central banks act to help Europe lenders


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Five central banks, including the European Central Bank, the Bank of England and Switzerland's central bank, said they would provide three-month dollar loans to banks from October, which will cover the year-end period.


This activity was intended to prevent an escalation of financial market tensions and signal that authorities are prepared to take action to boost market confidence. Within minutes of the announcement, European banking shares led a strong rebound in equity markets. BNP Paribas, one of the French banks that had suffered most on rumours of funding problems, rose as much as 22 per cent before closing up 13 per cent. Société Générale, another embattled French bank, finished up 5 per cent while Italy’s Intesa Sanpaolo and UniCredit gained 10 and 7 per cent respectively.

“Central banks are more than ever an anchor of stability and confidence”, said Jean-Claude Trichet, ECB president. The globally co-ordinated effort to provide US dollar liquidity was “a clear illustration of our very close cooperation at the global level and of the unity of purpose”, he said. The move by the central banks, in conjunction with the US Federal Reserve, followed escalating difficulties, especially at continental European banks, in obtaining dollar funding as US investors took fright at the eurozone debt crisis. The Bank of Japan, which had already offered three-month dollar liquidity, also said it would be making additional offers to cover the year-end period.

Full article (FT subscription required)



© Financial Times


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