Fed Acts to Stem Credit Turmoil
Friday August 10, 9:47 am ET
Federal Reserve Says It Is Providing Liquidity to Stem Credit Turmoil
WASHINGTON (AP) -- The Federal Reserve, trying to calm financial turmoil on Wall Street, announced Friday that it will provide liquidity to help bolster U.S. financial markets.
The Fed, in a short statement, said it will provide "reserves as necessary" to help the markets safely make their way. The central bank did not provide details but said it would do all it can to "facilitate the orderly functioning of financial markets."
The Fed's action comes one day after a financial panic about a credit crunch swept through Europe. That prompted the Europeans to pump $130 billion into their financial system. The Fed moved Thursday to add an extra $24 billion in temporary reserves to the U.S. banking system.
The Fed chose not to cut a key interest rate, called the federal funds rate, to address the problem. That interest rate still stands at 5.25 percent. The funds rate is interest banks charge each other on overnight loans.
Instead, the Fed is seeking to provide reassurance to investors that the central bank will pump extra money into the U.S. financial system to make sure the credit crunch doesn't worsen.
"In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets," the Fed said.
It told banks that the Fed's discount window -- where banks can turn in an emergency for short-term loans -- is available as a source of funding.
After the Sept. 11, 2001, terror attacks, the Fed used the discount window to extend billions of dollars worth of emergency loans to banks to keep the financial system functioning.
Friday August 10, 9:47 am ET
Federal Reserve Says It Is Providing Liquidity to Stem Credit Turmoil
WASHINGTON (AP) -- The Federal Reserve, trying to calm financial turmoil on Wall Street, announced Friday that it will provide liquidity to help bolster U.S. financial markets.
The Fed, in a short statement, said it will provide "reserves as necessary" to help the markets safely make their way. The central bank did not provide details but said it would do all it can to "facilitate the orderly functioning of financial markets."
The Fed's action comes one day after a financial panic about a credit crunch swept through Europe. That prompted the Europeans to pump $130 billion into their financial system. The Fed moved Thursday to add an extra $24 billion in temporary reserves to the U.S. banking system.
The Fed chose not to cut a key interest rate, called the federal funds rate, to address the problem. That interest rate still stands at 5.25 percent. The funds rate is interest banks charge each other on overnight loans.
Instead, the Fed is seeking to provide reassurance to investors that the central bank will pump extra money into the U.S. financial system to make sure the credit crunch doesn't worsen.
"In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets," the Fed said.
It told banks that the Fed's discount window -- where banks can turn in an emergency for short-term loans -- is available as a source of funding.
After the Sept. 11, 2001, terror attacks, the Fed used the discount window to extend billions of dollars worth of emergency loans to banks to keep the financial system functioning.
