Central banks' $180 billion deal

Fed and others will pump billions into markets to soothe global financial upheaval.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)

Which candidate would be the best leader in a bad economy?
  • John McCain
  • Barack Obama

NEW YORK (CNN) -- Central banks around the world are pumping billions of dollars into money markets in a coordinated bid to calm global financial upheaval.

The package of up to $247 billion comes from the U.S. Federal Reserve, the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan.

The injection of cash, which amounts to an expansion of up to $180 billion in available funds, is an effort to fuel economic activity. An agreement was reached earlier this year to provide $67 billion.

With major financial and insurance institutions teetering, commercial banks have tightened their lending policies and increased interest rates, taking billions of dollars out of the economy.

Under the plan, the European Central Bank will inject up to $110 billion, the Swiss National Bank up to $27 billion, the Bank of Japan up to $60 billion, the Bank of England up to $40 billion and the Bank of Canada up to $10 billion.

"We're very grateful that the rescue package has been put on the table, because frankly the world's inter-bank markets are just simply not working in the manner that they should do," said David Buik of the BGC Partners brokerage firm in London.

"There's a wholesale mistrust ... amongst everybody. It is essential that the central banks do stand there and massage the trust back into action," Buik said. "Without them, we would be in unbelievably uncontrollable turmoil."

Markets react

Britain's Lloyds TSB has announced a $22 billion deal to take over struggling HBOS, the UK's biggest mortgage lender. The government said it would facilitate the deal by overriding anti-monopoly regulations.

News of the central banks' plan cheered stock markets in Europe, with Britain's FTSE-100 up nearly 1.9%, Germany's DAX up nearly 1.5% and France's CAC 40 index up 1.6%. Russia's main stock exchanges suspended trading for a second consecutive day as the government tried to stop plunging in share prices and restore confidence.

Hong Kong's Hang Seng sank more than 7% at one point on Thursday, but closed flat as Asia shares staged an afternoon comeback to partially recoup losses.

On Wednesday, the Dow Jones industrials tumbled 449 points -- its second worst day of the year, but only the second worst day this week. The Nasdaq and the S&P also suffered drops of more than 4%.

The sell-off came in the wake of investment bank Lehman Brothers' (LEH, Fortune 500) bankruptcy, Merrill Lynch (MER, Fortune 500)'s sale to Bank of America (BAC, Fortune 500), and the U.S. government announcing an $85 billion plan to bail out insurance giant American International Group (AIG, Fortune 500) (AIG).

American financial investor Jim Rogers told CNN: "It's going to get worse. There are going to be more bankruptcies. There's going to be a big cleanout in the financial system."

"It's a complete collapse of confidence," Francis Lun, general manager of Fulbright Securities Ltd in Hong Kong, told The Associated Press. "The financial crisis in the U.S. is hitting everyone, everyone is running for cover. If the largest insurance company can fail, than no one is safe."

Bank deals

The remaining two Wall Street investment banks were hit particularly hard on Wednesday with Morgan Stanley (MS, Fortune 500) down 29% and Goldman Sachs (GS, Fortune 500) down 21%. (Full story)

British bank Barclays said it had reached a deal Wednesday to purchase key units of U.S. investment bank Lehman Brothers for $1.75 billion. The deal came just two days after Barclays walked away from talks to buy the beleaguered financial institution in its entirety.

Barclays will acquire Lehman's North American investment banking and capital markets businesses for $250 million in cash. Barclays will also purchase Lehman's New York headquarters and two data centers in New Jersey at their current market value estimated at $1.5 billion, a company statement said.  To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.