Long-term yields for U.S. Treasuries should indeed firm but be tempered by a slowing as this phase o...
Stocks rise as central bankers ride to the rescue of European banks
09/15/2011 12:00 pm EST
The European Central Bank, the U.S. Federal Reserve, the Bank of England, the Bank of Japan, and the Swiss National Bank announced this morning that they will lend dollars to European banks that are finding it difficult or overly expensive to borrow in dollars.
The keys here are
Coordinated action—the developed world’s major central banks are on the same page and all taking action at the same time
Duration—the banks will make dollar loans that run for three months. This is a big improvement from the European Central Bank’s existing dollar loan facility that lent for just a week at a time.
Predictability: The central banks announced that the loan program would cover bank dollar loan needs through the end of the year. One worry in the financial markets was uncertainty over how long the European Central Bank would provide funds.
Let’s be clear—nothing here is a solution for the underlying European sovereign debt crisis. Greece and Italy are in the same bad shape today as they were yesterday. But this guarantee of dollar loans to Europe’s banks assures that these banks won’t suffer a liquidity crisis while EuroZone governments crawl toward the next “solution” to the crisis, the approval of the July agreement that will give new bond-buying powers to the European Financial Stability Facility sometime, I hope, in early 2012.
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