Huge cash withdrawls??? $131bn USD

ECB injects €95bn to help markets

By Gillian Tett in London, Richard Milne in Frankfurt and Krishna Guha in Washington

Published: August 9 2007 12:59 | Last updated: August 10 2007 01:33

The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region's banking system after liquidity in the interbank market started to dry up, threatening banks' access to short-term funds.

The cash injection was the biggest in the ECB's history, exceeding the €69bn provided the day after the terrorist attacks of September 11 2001. The ECB also made an unprecedented one-day pledge to meet 100 per cent of all funding requests from financial institutions.

The ECB action followed a sharp increase in the rate at which banks are prepared to lend overnight to each other. It was designed to ensure that money markets continued to function.

Brian Sack, senior economist at Macroeconomic Advisers, said: "What happened today raises more systemic risk issues. It had a feel of liquidity problems similar to some of the past episodes like 1998...I am not saying it is as intense as 1998, but it certainly looked like that."

The Dow fell 2.83 per cent, while the UK's FTSE lost 1.83 per cent, Germany's DAX index fell 2 per cent and France's CAC-40 fell 2.17 per cent.

The ECB did not offer a detailed explanation for its move, which surprised markets, but simply said it was now seeking to "assure orderly conditions in the euro money market".

The $24bn injected into US markets by the New York Fed came in two scheduled open market operations

The total is roughly double the normal amount the Fed lends to the markets, but is not remarkably high and suggests the Fed is not in outright crisis fighting- mode.

Some traders warned that market unease was unlikely to dissipate soon. Edwin Rood, global head of money markets at ABN Amro, said: "The underlying problem cannot be addressed directly by the ECB."

http://www.ft.com/cms/s/a8c5829a-466e-11dc-a3be-0000779fd2ac.html

http://tinyurl.com/2mpsqv

Related to "sub-prime" loans and closing of 3 funds or something else?

G