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 December 27, 2007

Federal Reserve Injects Banking System to Treat Credit Crunch
The Federal Reserve Board made the announcement on December 12 that it had entered into an agreement with four foreign central banks its intentions to inject billion of dollars into the world's financial system in an effort to make additional money available for large banks to make loans to smaller ones.
The board will lend at least $40 billion to US banks which are cash-strapped beginning next week. An additional $24 billion will be available to the Swiss National Bank and the European Central Band to alleviate the European demand for dollars. The Board has also agreed to make dollars available to the Canadian and British Central Banks.

The move is seen by some as a very innovative approach to ending the current credit crunch and fending off a recession, rather than just lowering the benchmark interest rate.

The actions of the Federal Reserve will not solely reverse the current slump in housing prices nor will they correct the subprime mortgage crisis. Analysts say that this concerted effort by the central banks could help the world's financial system buy time to fix these problems on its own.

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