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Will central banks inject massive amounts of money due to the bank crisis?

*Bloomberg, by Gavin Finch and Min Zeng, December 18, 2007

“The cost to borrow in euros plunged after the European Central Bank added an unprecedented $500 billion to the banking system as part of a global effort to ease credit-market gridlock through year-end.

The two-week euro interbank offered rate dropped a record 50 basis points to 4.45 percent, the European Banking Federation said today. The rate had climbed 83 basis points in the past two weeks as banks anticipated a squeeze on credit through the end of the year.

`These are strong-arm tactics intended to show the market they’re seriously committed to breaking the deadlock,’ said Marc Ostwald, a fixed-income strategist at Insinger De Beaufort SA in London. `The ECB is helping to bankroll banks out of a problem that they themselves created.’

The decline may signal that policy makers, in their first coordinated action since Sept. 11, 2001, are making headway in reviving lending between banks. The credit-market crisis has caused banks from UBS AG to Deutsche Bank AG to report writedowns on securities linked to U.S. subprime mortgages, and sent money-market rates soaring.”


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