In the past several days, the ECB injected a total of around $213 billion into the European banks. The FED has injected a total of $62 billion into US banks. Worldwide a total of $326.3 billion was injected into the global economy.
ECB injects more funds into money market
The European Central Bank (ECB) injected 61.05 billion euros (around 83 billion U.S. dollars) into the money market on Friday after pumping in huge funds on the previous day.
Friday’s cash injection came after the ECB had unexpectedly pumped 98.4 billion euros (around 129.65 billion U.S. dollars) into the market on Thursday.
Thursday’s injection is the largest liquidity injection in the history of the ECB.
Massive coordinated liquidity injection to sooth markets
The Fed, which has pumped a combined 62 billion dollars into the market in two days, said it stood ready to release more money if necessary as investors ditched mortgage securities and stocks tied to the troubled housing sector.
Central banks move to counter liquidity crunch
‘We are not quite at the panic stage yet, but this is beyond jitters.’ — Martin Slaney, GFT Global Markets
In total, the ECB allocated slightly more than 94.84 billion euros in a one-day quick tender at a rate of 4.0%. The tender exceeded the roughly 70 billion euros provided in the immediate aftermath of the U.S. terrorist attacks on Sept. 11, 2001.
European emergency cash injection exceeds amount issued after 9/11
Marc Ostwald, fixed-income strategist at Insinger de Beaufort, said: “There is huge pressure on money rates due to an apparent sense of mistrust. Following BNP Paribas’ statement, very few institutions appear willing to lend. If you kill off the inter-bank market and the asset-backed commercial paper market has effectively collapsed, then we look to be heading for a serious liquidity crunch.”
Fed injects $38 bln, conducts third operation
Central banks worldwide have now injected at least $326.3 billion in the past 48 hours to prevent markets from spinning into a global liquidity squeeze. Short-term interest rates spiked in response to banks’ decreased willingness to lend to each other.
The Fed has now added a total of $38 billion of temporary reserves to the banking system through 3-day repurchase agreements. That was the largest single day amount since a $50.35 billion infusion on September 19, 2001.
[b]The Fed said all of the collateral accepted in the 3-day repos on Friday was mortgage-backed debt.[/b]
The above statement is very interesting. And even more telling is that almost nobody is mentioning this. Normally the FED injects money by buying Treasury bills, but in the past several days, they bought the mortgage-backed debt that was causing all the problems. And since it’s only a 3 day repo, they have to sell it back to the banks in 3 days. And if nobody was buying the debt last week, why would anyone want to buy them next week?
It’s going to be interesting to see what happens in the next couple of days.
Links:
FED – Wikipedia
Money Creation
Money Supply for Dummies
Q&A: Liquidity Crunch Fears
The Grim Reaper pays a visit to Wall Street