The US Federal Reserve has announced it will auction another $US100 billion ($A109 billion) in April to cash-strapped banks as it continues to combat the effects of a credit crisis.
The central bank said it would make $US50 billion ($A54.5 billion) available at each of two auctions, on April 7 and April 21.
Through the end of March, the Fed has provided $US260 billion ($A283 billion) in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.
All the moves have been designed to cope with a serious financial crisis that has roiled US and global markets and caused the near-collapse of Bear Stearns, the fifth largest US investment bank.
The Fed has been holding auctions every two weeks since December to provide short-term loans to commercial banks. It started with auctions of $US20 billion ($A21.8 billion), then pushed the level to $US30 billion ($A32.7 billion), and in early March raised the auction amount to $US50 billion ($A54.5 billion) as the credit shortage grew more severe.
In announcing the move to $US50 billion ($A54.5 billion) last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.
The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis. The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed. Previously, only commercial banks, which face tighter regulations, had that privilege.
The Fed also said it would make available $US30 billion ($A32.7 billion) in financing to support the sale of troubled Bear Stearns to JP Morgan Chase & Co, hoping to prevent a bankruptcy that could have rocked Wall Street.
The Fed's auctions have drawn criticism from some that the central bank, and ultimately US taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices.
Fed chairman Ben Bernanke will face questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee. By CompareShares.com.au - for more articles like this click here. CompareShares.com.au is Australia's pre-eminent news and investing site for investors and traders, covering shares, superannuation, property, financial planning strategies and more.
27th-March-2008 | 
