Central banks step in to attack credit crisis

The world's central banks on Wednesday unleashed a co-ordinated assault on the liquidity squeeze in global capital markets.

The Federal Reserve, European Central Bank, Bank of England, Bank of Canada, and the Swiss National Bank all announced measures to attack the liquidity crisis.

The Fed said it was creating a temporary credit auction facility, as revealed in today's FT, and entering into foreign exchange swap agreements with the ECB and the Swiss to tackle the shortage of dollar funds in Europe.

The move comes after several weeks of mounting tension in the global money markets, due to a combination of normal, year-end funding pressures and deepening gloom among banks about the impact of the losses on subprime-linked securities.

Until recently, some bankers had hoped that these money market pressures would be short-lived. However, in recent days some of the money market indicators have started to move in ways that suggest banks are now worried that funding problems will last into the New Year, or even the summer. This appears to have prompted the central banks to launch their joint action - a step which is unprecedented in terms of the degree of co-ordination that it implies between the leading central banks.

Panic, desperation, or something else again?

In the long run, we're all dead. John Maynard Keynes