The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region’s banking system after liquidity in the interbank market started to dry up, threatening banks’ access to short-term funds, reports the FT. Meanwhile, stocks plunged in key markets and government bonds jumped as investors sought safety in low risk assets. The cash injection was the biggest in the ECB’s history, and was accompanied by an unprecedented one-day pledge by the ECB to meet 100 per cent of funding requests from financial institutions. The ECB action followed a sharp increase in the overnight interbank lending rate, which swiftly spilled over into the US; while the Fed did not implement drastic emergency steps, it put an unusually large $24bn into US markets in scheduled open market operations.

This entry was posted by Gwen Robinson on Friday, August 10th, 2007 at 5:53 and is filed under Capital markets, Hedge funds. Edit this entry.