Response to savings and loans crisis revisited
A New York Senator has flagged the possibility of an agency to take equity stakes in ailing US financial companies.
If approved, the move would be similar (although on a much larger scale) to the Resolution Trust Corp created in the late 1980s in response to the savings and loan industry crisis.
The discussions of a co-ordinated response come after ad hoc responses to the challenges faced by Bear Stearns, Fannie Mae, Freddie Mac and AIG — with Lehman Brothers being left out in the cold.
They also follow a move from the US Federal Reserve and a number of Central Banks to restore liquidity and confidence to the US and global financial system.
Yesterday the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank announced a co-ordinated response to the “continued elevated pressures in US dollar short-term funding markets”.
The US Federal Open Market Committee authorised US$180 billion of swap lines to provide funding for both term and overnight liquidity operations by the other central banks.
The increased swap facilities will support the provision of US dollar liquidity of up to US$110 billion by the European Central Bank (an increase of US$55 billion) and up to US$27 billion by the Swiss National Bank (an increase of $15 billion).
New swap facilities have also been authorised with the Bank of Japan, the Bank of England, and the Bank of Canada, in the order of US$60 billion, US$40 billion and US$10 billion respectively.
All the reciprocal currency arrangements have been authorised until January 30 next year.
The latest development in the ongoing liquidity crisis was the acquisition of HBOS by Lloyds TSB for £12.2 billion, creating Britain’s largest mortgage bank. On the news, Lloyds’ shares fell 15.1 per cent, while HBOS shares gained 17.3 per cent.
There is speculation that the sale of Lloyds’ assets may be in the order of £9 billion, with the possibility that HBOS’ Australian operations could be included.
But HBOS Australia and BankWest said customers of the local group would benefit from the acquisition, with Australian banking customers becoming part of one of the world’s biggest banks.
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