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: