6 Central Banks Act to Buy Time in Europe by Binyamin Appelbaum
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” said a statement released by the Fed, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.Head of ECB hints at more bank action if euro countries curb spending by Anthony Faiola and Neil Irwin
The Fed’s policy-making committee approved the arrangements during a videoconference Monday morning by a vote of 9 to 1. The dissenting vote was cast by Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, who said in a statement that the program amounted to an act of fiscal policy, which is the responsibility of the Treasury Department.
The arrangements carry little risk for the Fed, which receives an equal amount of the currency of the borrowing country together with a commitment to reverse the transaction at the same exchange rate. The loans also are modestly profitable, as the foreign central banks pass on to the Fed the interest payments that they collect from borrowers.