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Will the US financial crisis grow to engulf foreign central banks?

*Financial Times, by Francesco Guerrera, Krishna Guha and Greg Farrell, September 15, 2008

Wall Street Crisis Deepens

“Wall Street was in turmoil on Monday after Lehman Brothers filed for bankruptcy protection and Merrill Lynch agreed a $50bn takeover by Bank of America.

Confidence in financial institutions around the world was shaken as central banks introduced a series of emergency measures to ease the crisis in the global financial system.

Equity markets fell heavily and debt spreads widened as banks, investment managers and insurance companies came under heavy selling pressure.

BofA’s bold bid for Merrill came as the world’s top banks abandoned efforts to save Lehman and set out to build a firewall against further financial chaos with a $70bn liquidity pool to support other vulnerable institutions.

The moves capped a weekend of high drama that could lead to one of the most radical reshapings in Wall Street history.

The Federal Reserve said it was making it easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral. The Fed meets to decide on interest rates on Tuesday.

It widened the set of assets eligible as collateral for loans of Treasuries to include all investment grade paper, and raised the size of these Treasury loans to $200bn.”

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