World’s central banks act to ease market strains

Major central banks around the globe took coordinated action today to ease the strains on the world’s financial system, saying they would make it easier for banks to get dollars if they need them. Stock markets and the euro rose sharply on the move. The U.S. Federal Reserve, European Central Bank, Bank of England and the central banks of Canada, Japan and Switzerland were taking part. “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the central banks say in a joint statement. As Europe’s debt crisis has spread, the global financial system is showing signs of entering another credit crunch like the one that followed the 2008 collapse of U.S. investment bank Lehman Brothers. Banks are afraid to lend to each other, since no one is really sure what institutions are holding how much bad government debt. The central banks agreed to reduce the cost of temporary dollar loans they offer to banks—called liquidity swaps—by one-half percentage point. The new, lower rate will be applied to all central bank operations starting Monday. The cut means that the charge will fall to 50 basis points—or one-half percentage point—over an international benchmark, the overnight index swap rate, which is averaging around seven to 10 basis points currently. Read the full story by The Associated Press here.