U.S. Fed makes an extra $150B cash available
Last Updated: Monday, October 6, 2008 | 6:13 PM ET
CBC News
The U.S. Federal Reserve said Monday that it will raise the amount of cash loans it will make to banks so they, in turn, will increase loans to borrowers and open the blockage that is threatening to strangle economic growth.
It said it will offer $150 billion US in new 85-day credit, which will be offered to financial institutions in amounts ranging from $5 million to $15 billion.
The new loans will bring the total outstanding to $600 billion. The Bank of Canada announced a $12-billion Cdn boost to its loan program on Friday, pushing the total available to $20 billion.
The U.S. central bank will make the money available in the hope that financial institutions will start lending to each other, individuals and businesses.
Lenders are hoarding cash because they fear they won't be repaid. The drying up of loan money affects any transaction that requires borrowing, from car purchases to corporate takeovers.
Bush urges patience
U.S. legislators passed and President George W. Bush signed a bill authorizing a $700 billion US bailout of Wall Street's bad loans on Friday, which was supposed to reassure credit and stock markets. But it may not be enough: Markets fell Monday and European governments rushed to reassure bank depositors.
"It's going to take a while" for the money to start boosting economic activity, Bush said Monday. But "I believe that in the long run, this economy is going to be just fine."
The money is supposed to melt the credit freeze "to get money moving again," he said, but "we don't want to rush into the situation and have the program not be effective."
European countries guarantee deposits
Also Monday, British Treasury chief Alistair Darling said Britain would do "whatever was necessary" to protect its banks and depositors.
Other European countries — Ireland, Germany, Austria, Greece and Denmark — have guaranteed bank deposits, to encourage depositors to keep their money in the country. Without the guarantee, deposits might move to a jurisdiction that did have a guarantee.
The countries that guaranteed deposits do so unilaterally, raising concerns that efforts to stabilize banks could be undermined, European Union competition chief Neelie Kroes said.
Bank of America halves dividend
The Bank of America, which less than a month ago bought Merrill Lynch in a $50-billion transaction, announced Monday it was halving its quarterly dividend and trying to raise $10 billion by selling new stock.
"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," Kenneth D. Lewis, chairman and CEO, said in a statement. The bank is saving money and raising new cash because "both economic and financial market conditions have changed significantly in the last two months."
The bank bought Merrill, a storied name among investment banks, after it got in trouble with mortgage investments.
With files from the Associated Press
