Crisis remains despite central bank assault

Fri, Dec 14 12:40 AM

Investor delight at a concerted central bank attempt to relieve jammed money markets fizzled out on Thursday with experts saying the credit crisis would only end when commercial banks trusted each other again. The Federal Reserve and counterparts in Europe, Canada and Britain banded together on Wednesday to cough up funds to boost liquidity in their first coordinated action since terror attacks shut U.S. financial markets on September 11, 2001.

The Fed said it would launch a "temporary term auction facility", expanding the number of banks allowed to borrow money at favourable rates. The deal, hammered out in Cape Town at a meeting of the Group of Twenty last month, also catered for affected foreign investors -- the Fed will open foreign exchange swaps for up to $20 billion with the European Central Bank and up to $4 billion with the Swiss National Bank (SNB).

Welcome but not enough was the verdict on Thursday. Even the SNB said central banks alone could not solve the crisis, as it kept interest rates on hold.

"As long as uncertainty with respect to the scope of the credit problems exists the disruptions on the money market are likely to persist," the SNB's Thomas Jordan said.

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