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| ECB offers banks unlimited funds | ECB offers banks unlimited funds |
| (about 2 hours later) | |
| The European Central Bank is to offer banks unlimited funds at a below-market rate, in a cash injection to counter the impact of the global credit crunch. | The European Central Bank is to offer banks unlimited funds at a below-market rate, in a cash injection to counter the impact of the global credit crunch. |
| It is one of five central banks that have pledged to inject billions in emergency cash into money markets. | It is one of five central banks that have pledged to inject billions in emergency cash into money markets. |
| The aim is to cut the cost of lending between retail and commercial banks, which has jumped in the past few weeks. | The aim is to cut the cost of lending between retail and commercial banks, which has jumped in the past few weeks. |
| All banks with enough collateral, and which submit bids of at least 4.21%, will receive funds from the ECB. | All banks with enough collateral, and which submit bids of at least 4.21%, will receive funds from the ECB. |
| The interest rate being charged on the loan is lower than the 4.9% market rate for interbank borrowing which has been in place over the past few days. | The interest rate being charged on the loan is lower than the 4.9% market rate for interbank borrowing which has been in place over the past few days. |
| The idea is to try and bring down interbank rates closer to the ECB's target interest rate of 4%. | The idea is to try and bring down interbank rates closer to the ECB's target interest rate of 4%. |
| The two-week ECB refinancing operation is the first time it has said it would offer banks unlimited funds, above a certain interest rate, since 9 August when the credit crisis started. | The two-week ECB refinancing operation is the first time it has said it would offer banks unlimited funds, above a certain interest rate, since 9 August when the credit crisis started. |
| Central bank coordination | Central bank coordination |
| The main reason banks have been unwilling to lend to each other is a downturn in the US property market. | The main reason banks have been unwilling to lend to each other is a downturn in the US property market. |
| A surge in mortgage defaults and bad debts has forced many banks to cut the value of their mortgage investments, costing them billions of dollars. | A surge in mortgage defaults and bad debts has forced many banks to cut the value of their mortgage investments, costing them billions of dollars. |
| As a result, the banks fear that they might need any spare cash they have to cover their losses. | As a result, the banks fear that they might need any spare cash they have to cover their losses. |
| Central banks have also been boosting liquidity into the banking sector to ensure banks keep offering credit to businesses. | Central banks have also been boosting liquidity into the banking sector to ensure banks keep offering credit to businesses. |
| On Monday, the US Federal Reserve made $20bn available through auction, though it did not say how many banks took advantage of the extra money. | On Monday, the US Federal Reserve made $20bn available through auction, though it did not say how many banks took advantage of the extra money. |
| And on Tuesday the Bank of England is set to lend more than another £10bn in funds. | |
| As well as the Bank of England, the Fed, and the European Central Bank, the national banks of Canada and Switzerland are also involved in the funding plan. | As well as the Bank of England, the Fed, and the European Central Bank, the national banks of Canada and Switzerland are also involved in the funding plan. |
| But some analysts say that until the banks reveal the true scale of their potential losses, the central banks will be unable to do much to ease the credit crunch. | But some analysts say that until the banks reveal the true scale of their potential losses, the central banks will be unable to do much to ease the credit crunch. |