The world's top central banks said on Sunday they would start offering daily loans in dollars to their banks to avert stress in the funding market after the emergency rescue of Swiss giant Credit Suisse Group AG .
Trouble at Credit Suisse - one of the world's largest banks - sent shock waves through global markets last week, raising fears of a new financial crisis and threatening to derail central bankers' efforts to tackle high inflation.
The coordinated move announced on Sunday, reminiscent of the global financial crisis of more than a decade ago, will see the Federal Reserve and the central banks of the euro zone, Britain, Japan and Canada offer seven-day dollar loans to their banks starting on Monday.
This signals the depth of concern central bankers have over the recent turmoil in the financial system on both sides of the Atlantic, with Credit Suisse coming under market pressure last week after the collapse of two U.S. banks.
"To improve the swap lines' effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily," the central banks said in a joint statement.
The daily auctions will be held at least through the end of April.
Existing weekly auctions in dollars at the Bank of Japan and the ECB have been barely used of late.
But Credit Suisse found itself in dire need of U.S. dollars last week until it was thrown a 50 billion-franc lifeline by its own central bank.
At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region's banking sector and looking to the Fed and the ECB to step in with stronger signals of support, two senior executives with knowledge of the deliberations told Reuters.
The Fed and the BoE are due to hold policy meetings this week, when they will have to strike a difficult balance between their fight against inflation and worries about financial turmoil.
Analysts polled by Reuters expect both banks to raise rates by 25 basis points each.
The ECB raised interest rates by half a percentage point last week but ECB President Christine Lagarde said any further move will depend on incoming data about the economy and financial markets.