As in the last couple of days the supply of US Dollar liquidity for the financial system became extremely tight, major central banks intervened in a coordinated action. The US Fed will provide to the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan an extra amount of USD 180bln which can be used for overnight and term funding. The ECB has up to USD 110bln at its disposal, today the amount of USD 40bln has been provided overnight.

 

Market reaction: The skyrocketing interest rates for short term US Dollar funding declined markedly but are still at elevated levels. Bid/Ask spreads are unusually high.

 

Assessment: We think that this coordinated action will help to prevent a further escalation of the nervousness in the financial system. Due to the extremely stretched situation in provision and securing liquidity in the banking system further common measures are needed and in our view will be taken.