Fed pumps $8bn into market to head off new crunch

By Stephen Foley in New York

Published: 27 November 2007

 

Central bankers are becoming nervous that a renewed credit crunch could destabilise financial markets around the end of next month, and the US Federal Reserve has pumped an initial $8bn (£3.9bn) into the market to help ease the mounting pressure.

Wall Street banks have been hoarding cash rather than lending it out, fearful that losses on US mortgages and related products are undermining the strength of their balance sheets.

And the Federal Reserve said that the problem could become acute before 31 December, when many institutions close their books on the financial year and when many important accounting calculations are made.

In a highly unusual move, the Federal Reserve Bank of New York said yesterday that it was putting an additional $8bn into the financial system through 43-day loans, money that won’t have to be paid back until 10 January. The duration of the loans is substantially longer than that in normal market operations by the Fed.

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