AMID A dramatic series of private- and public-sector initiatives intended to mitigate the impact of the failure of Lehman Brothers, 11 of the world's biggest banks have agreed to pool $70 billion (€49 billion) in a giant liquidity fund to help counter disruption in short-term funding markets.
The creation of the fund came in conjunction with moves from the US Federal Reserve to dramatically ease its lending terms - allowing investment banks to pledge equities and loans in return for cash - and the temporary suspension of a rule that normally prohibits deposit-taking banks from using deposits to help finance their investment banking subsidiaries.
Both the Fed moves and the new private-sector liquidity fund are aimed at countering a feared disruption in the so-called triparty repo market, in which investment banks secure short-term funding for their balance sheets, much of it from money-market mutual funds.
Each bank will be able to borrow up to one-third of the total fund.
- (Financial Times service)
