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Last Updated: Friday, 7 March 2008, 17:45 GMT
$200bn Fed move over credit fears
Dollar bills
There are fears the US economy may be heading for recession
The US Federal Reserve is making $200bn (99bn) available to major banks in an attempt to ease concerns about a global credit crunch.

It has announced increases in the size of its credit auctions to $100bn, and is also making another $100bn available through other means.

The Fed said it had taken action "to address heightened liquidity pressures" in funding markets.

It hopes to offset a credit crisis that may tip the US economy into recession.

'Liquid funds'

BBC business editor Robert Peston said: "The effect of the Fed's measures is to supply banks and financial institutions with the liquid funds that they can't currently obtain on the commercial markets."

Banks have become unwilling to lend to each other because they are worried about the huge losses on investments in the US mortgage market.

Many banks invested in assets backed by mortgages given to US home owners with poor credit records.

The sharp downturn in the US property market has made those assets very difficult to value and banks are having to declare them as losses.

Recent data issued on Thursday showed the downturn continuing, with a record number of home foreclosures, and no signs of an increase in forthcoming home sales.

Auctions continue

The central bank has now increased to $50bn each, from $30bn, the amounts available in its two Term Auction Facility auctions later this month.

The TAF programme was launched in December to relieve pressure in the short-term, inter-bank funding market.

The Fed will also make $100bn available through weekly 28-day repurchase agreements, with it lending money in exchange for assets such as Treasuries.

It said that the TAF auctions would be continued for at least the next six months.



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