INSTANT VIEW: Global central banks flood system with cash

NEW YORK (Reuters) - Central banks around the world on Monday unveiled a coordinated effort to pump massive amounts of cash into the global banking system in a bid to restore confidence shaken by the credit crisis.

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KEY POINTS: * The U.S. Federal Reserve increased its reciprocal swap line arrangements with nine central banks by $330 billion to $620 billion. * The Fed also expanded its term funding auctions to head off a possible year-end cash crunch.

COMMENTS:

JOHN CANAVAN, MARKET ANALYST, RESEARCH COMPANY STONE & MCCARTHY IN PRINCETON, NEW JERSEY:

"They have taken this action today in hopes of easing some of the strains on money markets here and in Libor."

"The Treasury market was already rallying strongly and has spiked to new highs in the wake of this (Fed announcement), in part related to the crisis nature of the actions."

ADAM COLE, GLOBAL HEAD OF FX STRATEGY AT RBC CAPITAL MARKETS, LONDON:

"We are seeing a big reaction in Eurodollar futures. The bigger the central banks do this kind of liquidity injection, the more effective they will be (in reducing money market strains). But also, there will be speculation that these kind of liquidity injections raise the prospect for interest rate cuts."

TJ MARTA, RATES STRATEGIST AT RBC CAPITAL MARKETS, NEW YORK:

"We are experiencing a massive credit implosion and deleveraging that far exceeds the US housing market. We have cautioned that despite fixation on the US housing market, the danger emanates from the leverage applied via various derivate products.

"To reiterate, financial derivatives were used to create a 'virtual credit market' an order of magnitude greater than traditional fixed income markets. Those derivatives were based on traditional risks like mortgages. Unfortunately, negligent/non-existent underwriting has led to non-performance of risks, which would be painful enough without the massive leverage applied to them.

"Further failures of financial institutions increase the risks of counterparty failures and an uncontrolled deleveraging event. The subsequent dislocation of financial markets would almost certainly lead to a significant economic event. This morning we wrote that the crisis was evolving along the 'worse' paths of the scenarios we thought might develop. We'd reiterate that characterization."

DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES, NEW YORK:

"You could see that some kind of massive liquidity injection was coming and the question was only the size. The Fed and other central banks are saying that they will do what they need to do to keep the markets liquid. This is what you do when liquidity dries up and that's what has happened. As to why the Dow is reacting adversely, it's because people don't understand it and it adds to the confusion."

RICHARD FRANULOVICH, SENIOR CURRENCY STRATEGIST AT WESTPAC BANKING CORP, NEW YORK:

"It's symptomatic of the massive U.S. dollar shortage and demand by banks around the world. They are pulling out all the stops, these are staggering amounts of cash. They are firing on all their cylinders at the problem, they are not being half-baked anymore."

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO-MITSUBISHI UFJ, NEW YORK:

"This is very good. The funding world, the financing world is on fire, there is tremendous pressure here and central banks are the lender of last resort and this is all to the good. The most important thing is the provision of term money, apparently they have gone to more or less three-month money. It is a huge amount and this will help banks secure funding over the turn of the year, as of the December 31 financial statement date pressures that everyone has been worried about. So this is good, it will go a long way toward stabilizing the funding markets and if the bank funding markets get stabilized it should help equity markets calm down. The fact that they are now allowing $225 billion, it is very big. The problem with the market now is that there is excessive fear of counterparty risk and this will go a long long way to settling things down. It is a huge amount of money, massive and I don't think anyone would have expected this amount."

VASSILI SEREBRIAKOV, SENIOR CURRENCY STRATEGIST, WELLS

FARGO, NEW YORK:

"At the margin, this news is a positive for risk aversion and should put the yen and the dollar a bit on the defensive. The dollar had gained earlier on a relief rally about the bailout plan and it seems that with these central bank measures, we may see some easing in the money market which may help boost risk appetite. We may see the dollar come off its highs a little bit and we did see the yen come off briefly versus the dollar."

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:

"It's a realization that the European banking system, which is wholesale funded and enormously leveraged like U.S. investment banks, are now under fire. They don't have deposits. They are at greater risk for liquidity problems."

"If the ECB and Fed cannot keep these interbank banking rates low, those institutions are going to have a terrible time. The U.S. banks are dependent on European banks for funds and it's important to keep them functioning. It's our problem too. But boy, this is enormous."

"The liquidity crisis in Europe with the spike in Libor. That's a crisis of confidence in the European banks. They have too much leveraged and they are under-capitalized."

"Basel II has less capital requirement than Basel I. Basel II needs to be written and it's dependent on the rating agencies."

JOE SALUZZI, CO-MANAGER OF TRADING AT THEMIS TRADING, CHATHAM, NEW JERSEY:

"They are throwing billions around, but things seem to be getting worse. They are throwing everything they can at the problem but nothing seems to be working. There's a monster amount of fear out there. This is global contagion, it's no longer just the United States. The TED spread is going to the moon, gold is up even though the dollar is stronger. The stock market is not even the issue anymore. It's all about the credit markets and whether money will seize up. You can't even look at the S&P index as an indicator right now, it's irrelevant. The major issue is credit, and whether companies can meet their payrolls. If bankruptcies start showing up, we'll know it's seeped everywhere."

MARKET REACTION: STOCKS: Global benchmark indexes remain near the day's lows amid a worldwide sell off in equities. MSCI's main world index is down more than 4.3 percent. BONDS: Government bond prices, up across the board, remain near the day's high. Benchmark U.S. 10 year notes are up nearly two full points. CURRENCIES: U.S. dollar pares gains against the euro and turns negative against the yen as risk aversion rises. COMMODITIES: Gold surges as investors seek safety but other commodities, oil in particular, plummet.