Central Banks Inject ?100Bn into Markets; Ray of Light: The European Central Bank in Frankfurt Is Helping to Supply Liquidity
Byline: Simon Duke
CENTRAL banks around the world made an unprecedented intervention in the money markets in their latest bid to avert a meltdown in the financial system.
The Bank of England, America's Federal Reserve and other monetary authorities are pumping an extra ?100bn into their overnight US dollar lending facilities to relieve the pressure on cash-strapped banks.
The co-ordinated operation is the largest of its kind in the history of finance, highlighting again that the current crisis is as grave as the Great Depression of the 1930s.
The cash injection is the most significant move yet to address the chronic shortage of liquidity, which has brought wholesale lending markets to a standstill.
Since the collapse of Lehman Brothers and the government bail-out of US insurer AIG at the weekend, banks have become more wary than they've ever been of lending to each other, for fear of not getting their money back.
Money has flooded into havens such as short-term US government bonds - now more expensive than they have been since the Second World War. Gold, also seen as a sanctuary in times of trouble, hit a six-week high yesterday.
Jim O'Neill, an economist at Goldman Sachs, said: 'There's a complete lack of faith in the market and a lot of cash hoarding. The central banks are acting to relieve that.' The record-breaking move did little, however, to steady investors' frayed nerves.
The FTSE 100 fell another 32 points to 4,880 and Wall Street dropped as much as 150 points despite the emergency HBOS takeover and US moves to crack down on short trading.
Overnight US dollar rates did fall back from their peak of earlier this week, but the price of borrowing in sterling for three months shot up from 5.87pc to 5. …