Central banks hatch new scheme to revive liquidity

The US Federal Reserve, the European Central Bank and the central banks of Canada, Britain and Switzerland overnight disclosed a plan to provide additional borrowing facilities to banks and aid they will also widen the pool of assets that banks may offer as security.

The Fed and the ECB will each auction US$80 billion in aggregate in two rounds on Monday and Thursday next week.

According to the pitch at the website of the US Fed, "by allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress."

The Fed will lend US dollars to the ECB that the ECB in turn expects to lend to banks in Europe.