Markets rally after eurozone rescue mission by world's central banks
Five central banks take steps to funnel cash to eurozone commercial banks by year's end. Their aim? Avert a funding freeze – and perhaps another global banking crisis tied to bad debt.
Central banks from around the world banded together Thursday to calm fears of financial chaos in Europe, pledging loans designed to prevent a short-term funding freeze for private-sector banks in the eurozone.
The plan to offer three-month loans buoyed anxious investors, sending stock markets up globally. The Dow Jones Industrial Average, for example, rose 1.7 percent to close above 11400.
The move doesn't put an end to Europe's debt crisis, but it does appear to buy time as governments seek a longer-term solution.
The European Central Bank said the action – in which it is joined by the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank – will include three "liquidity-providing operations" that funnel cash to commercial banks before the end of the year.
European banks have seen their share prices dive in recent weeks, amid worries that their holdings of some European government debts will face defaults or "haircuts" (losses as debts are restructured). The biggest risk of default remains the debt of Greece, but the perception of credit risk has risen for larger nations, including Italy.