Fed, other central banks pump billions into money markets

WASHINGTON -- The Federal Reserve early Thursday announced a coordinated move with foreign central banks to help keep dollars flowing as the credit crisis continues to unfold.

The Fed said it expanded its temporary reciprocal currency arrangements, known as "swap lines," to $180 billion with the European Central Bank and central banks in Canada, England, Japan and Switzerland. Previously, the Fed had swap lines worth $55 billion with the ECB and $12 billion with the Swiss.

The lines provide dollars those institutions can lend to banks facing a U.S. dollar crunch.

The move is "designed to address the continued elevated pressures in U.S. dollar short-term funding markets," the Fed said in a statement. "These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures."

The action is the latest by the Federal Reserve to help keep liquidity flowing in the financial markets as the turmoil on Wall Street has hit a fever pitch. Tuesday, the Fed announced it was providing up to $85 billion in loans to insurance giant AIG, effectively putting the government in charge of the company and allowing it to sell its assets in an orderly way.

The Fed has been increasing the swap lines since March.

"It's all hands on deck," says Richard Yamarone, director of economic research at Argus Research. "Any and every entity, Treasury, the Fed and all central banks around the world are being summoned to right the potentially sinking ship. It's in everyone's interest that the financial, banking system is kept afloat."

The Fed has been trying to tackle the problems in financial markets by pumping in added liquidity, suggesting lower interest rates may not be the appropriate cure for the credit crisis. Even if rates go lower, tight credit markets might not lead banks to lend more, given the anxiety in the markets.