Fed Adds $24 Billion to Bank Reserves
Central banking in practice:
Today's Markets - WSJ.com: The specific worries on Thursday came after French banking group BNP Paribas suspended three asset-backed securities funds, spooking European investors and inspiring the European Central Bank to flood markets with money. The Federal Reserve subsequently poured a little more cash than usual into the U.S. banking system in order to deal with demand spilling over from Europe. BNP Paribas said it had suspended three funds with exposure to the U.S. credit markets as it has become impossible to accurately value them after "the complete evaporation of liquidity." Subsequently the ECB loaned more than $130 billion in overnight funds to banks at a bargain rate of 4% in order to provide more cash for a financial system jolted by the collapse of the U.S. subprime mortgage market.
Shortly after this news, federal funds futures contracts on the Chicago Board of Trade priced in a 100% chance of a Federal Reserve rate cut in September. On Wednesday, the market odds of a cut at that time were just 25%.
The Fed also arranged a 14-day repurchase agreement -- a tool the central bank uses to temporarily add to banking reserves -- of $12 billion. A little while later, it added a one-day repo agreement of an additional $12 billion...
