Ten days of secret planning to rescue markets

Ten days of secret planning to rescue markets
December 02, 2011

Bank of England governor Mervyn King presents the Financial Stability Report in London December 1, 2011. — Reuters pic
LONDON, Dec 2 — Britain orchestrated this week’s bold move by central banks to stave off a cash crunch in global markets, helping drive a plan that began to take shape around 10 days ago.
For months, central bankers have tracked with growing concern how the deleveraging among European banks, hurt by the tumbling value of euro-zone debt, was hurting global funding as banks sold off assets and brought cash back home.

Indeed, some central banks had urged the Federal Reserve for some months to put in place cheaper dollar funding, but the Fed had resisted, said a source with direct knowledge of this week’s deal.

Last week, conditions grew particularly acute after a German bond auction failed to attract enough buyers. The Federal Reserve and the European Central Bank started serious discussions around the middle of last week, banking officials in Europe and the United States told Reuters.

Bank of England Governor Mervyn King said he called the meetings that led to the decision by six of the world’s major central banks to cut dollar funding rates to keep money flowing through the world’s financial arteries.

“It was the result of conversations which I initiated as chairman of what used to be known as the G10 governors, now the economic consultative committee, among a limited number of central banks,” he told a news conference in London yesterday. Read More