With credit still tight, Fed mulls liquidity tools

While Fed officials remain open to further moves they feel the steps they have already taken have helped unclog credit markets and some are skeptical that lending at longer maturities would necessarily prove effective.

Banks in Europe continue to pay high premiums to obtain three-month and six-month credit from the ECB, exhibiting a degree of caution that has surprised ECB officials.

"Banks ... continue to bid for liquidity in the weekly, three-month and six-month ECB tenders at much higher interest rates, apparently pricing in a risk that does not exist at all," ECB Executive Board member Lorenzo Bini Smaghi said on April 4.

At the same time, central banks are actively discussing recommendations issued at a meeting of Group of Seven financial officials on April 11 that they establish links among themselves to erect more of a global bulwark against future liquidity crises.

Those recommendations from the Financial Stability Forum include the establishment of standing -- rather than temporary -- currency swap lines. Central banks should also accept high-quality collateral denominated in a range of currencies, the FSF urged.

The recommendations have support at the Fed, where the idea of making it easier for banks to mobilize liquidity from around the world is seen as a way to help ensure a smooth flow of funds.

(Editing by Andrea Ricci)