World’s central banks flood market with dollars
By CARLO PIOVANO
LONDON — Five of the world’s top central banks acted jointly Thursday to provide unlimited dollar loans to banks, a move aimed at easing the growing tensions in the eurozone’s financial sector and shielding the global economy from its jitters.
The European Central Bank said it will coordinate with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to offer three-month dollar loans to banks through the end of this year. There was no separate statement from the Fed.
The coordinated effort aims to prevent Europe’s debt crisis from derailing the global economy’s rebound from recession, a topic that will dominate talks between U.S. Treasury chief Timothy Geithner and his European counterparts at a meeting from Thursday night through Saturday in Poland.
European banks have seen their shares sink recently on fears they were having trouble getting short-term loans from each other because of fears they were exposed to huge losses from the government bonds of Greece and other troubled eurozone countries.
When a bank is rumored to be in danger of suffering large losses, other banks will stop lending to it for fear of not getting their money back – a scenario that created the global credit crunch in 2008. Ultimately, the threat to the wider global economy is that banks will stop lending to businesses, stifling growth.