Frankfurt, Germany – Two continents. Two central banks. Two views of how much danger the subprime-mortgage-market implosion poses.
In Europe, worries that liquidity was drying up because some banks are unable to value securities backed by subprime U.S. mortgages pushed its central bank to inject a torrent of cash into markets Thursday.
For the Federal Reserve, everything was business as usual.
The European Central Bank loaned more than $130 billion in overnight funds to banks at a bargain rate of 4 percent.
The amount dwarfed the $24 billion that the Federal Reserve – whom critics contend has been slow to act amid stock volatility, dwindling credit and growing mortgage woes – lent to banks.
A New York Federal Reserve official called the move “pretty much standard practice.” The official asked not to be named because of market sensitivity.
The Fed’s move brought the federal funds rate, the rate at which banks lend each other money overnight, back down to 5.25 percent after it was driven higher earlier in the day by a rush by banks to stockpile cash.
The ECB’s overnight funds were quickly swallowed by parched banks. Its action came after French bank BNP Paribas SA announced the suspension of three asset-backed securities funds, saying it could not value them accurately. That sent stocks lower in Europe and the United States as investors sought safer havens such as Treasurys.
