Central banks to inject $200 billion to ease market strains

By Michael M. Grynbaum

March 12, International Herald Tribune

NEW YORK: The Federal Reserve on Tuesday announced coordinated action with other central banks to unfreeze panicky credit markets, unveiling a $200 billion program to let even the biggest banks borrow ultrasafe Treasury money by using some of their riskiest investments as collateral.

The action was the second by the Fed since Friday designed to stem a cash squeeze at seemingly solid financial institutions, which have become too frightened to finance even conservative debt offerings.

Stock markets soared after the announcement, with the Dow Jones industrials average closed up 416.66 points, or 3.6 percent, at 12,156.81. It was the biggest one-day point gain for the Dow since July 29, 2002. The dollar also strengthened from a record low against the euro, a sign that investors believed the program would help alleviate pressure in financial markets. (Page 17)

The so-called Term Securities Lending Facility will allow strapped financial institutions to hand potentially damaged securities to the government in exchange for either cash or Treasury securities, whose U.S.-government backing makes them one of the safest investments on the market.

The Fed normally lends Treasury securities to banks for just a few hours. Under the new program, money will be lent for 28 days and the central bank will accept nongovernment mortgage-backed securities - the source of the current crisis in the credit markets - as collateral.

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photo: Guarding the Federal Reserve building in Washington. The Fed and other central banks announced a $200 billion program to help credit markets. (Kevin Lamarque/Reuters )