So what’s caused this? Other than the general on-going credit meltdown, of course. On Tuesday, at lunchtime in London and breakfast in New York, the Fed, the Bank of England and the ECB were joined by the Bank of Canada and the Swiss National Bank in launching coordinated bout of liquidity provision. The Bank of Japan and Sweden’s Sveriges Riksbank were taking similar action
In response, stocks rocketed in both London and across the continent, while the dollar gained and gold dropped.
The specific Fed action:
The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.
In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.
The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.
The Bank of England action is available here and the ECB statement is here. The Bank of Canada stuff is here, the Swiss version here, Japan’s here and Sweden’s here.
