SNB joins international effort to bail banks
Switzerland's central bank will join forces with European, Japanese and Canadian counterparts to relieve ailing financial markets by pumping in more cheap credit.
The announcement follows the collapse of United States investment bank Lehman Brothers on Monday and warnings that several other institutions in desperate trouble.
The Swiss National Bank (SNB) said on Thursday that the coordinated effort to increase repurchase agreements – known as repo auctions – was designed to improve liquidity conditions globally.
Liquidity, or the supply of money available for financial institutions to make transactions, has dried up amid the monetary crisis in the US.
The SNB said it would today begin holding daily auctions with a term of one day for an amount of up to $10 billion (SFr11.2 billion). It hoped this would “address the continued elevated pressures in US dollar short-term funding markets”.
The auctions essentially translate into cheap and necessary credit for banks to continue functioning. A one-day, or overnight, term means that the borrower must repay the balance plus interest the next day.
The SNB also said it would increase the limit for 28-day terms from $6 billion to $8 billion and 84-day terms from $6 billion to $9 billion.
The maximum total amount of outstanding credit issued by the SNB has now been raised to $27 billion from the previous limit of $12 billion.
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