Spreading Credit Problems

Fed vows, then pumps massive funds to calm markets

By Glenn Somerville and Tamawa Kadoya Fri Aug 10, 4:14 PM ET
WASHINGTON/NEW YORK (Reuters) - The U.S. Federal Reserve on Friday sought to reassure investors and head off spreading credit problems by vowing to provide liquidity and injecting the most money in the banking system since shortly after the September 11, 2001, attacks.

The U.S. central bank rarely issues statements about its market operations and the largess of its fund injections reflect the seriousness that it views the current disorder in credit markets.

Much of the disorder stems from problems in U.S. housing markets where defaults on subprime mortgages to less creditworthy borrowers are rising.

With the problems spreading to Europe and affecting financial markets globally, the Fed worked in tandem with other central banks to pump liquidity into the banking system.

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The Fed pumped a total of $38 billion in temporary funds in three separate occasions on Friday, a highly unusual move not seen since July 2000.

The three cash infusions were the largest single day amount since $50.35 billion on September 19, 2001, and more than five times the amount that was injected a week ago on Friday.

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