U.S. urges global action on credit crisis
| WASHINGTON
WASHINGTON U.S. officials called for a "forceful and coordinated" global response to the credit crisis on Monday as financial market confidence cratered despite another heavy dose of central bank lending.
The U.S. Federal Reserve said it would begin paying interest on reserves banks hold at the Fed, a move that would allow it to keep flooding markets with cash without driving its benchmark federal funds rate below target.
The Fed also expanded the amount of money offered in its 28-day and 84-day Term Auction Facility -- or TAF -- auctions to $150 billion each, and increased the amount to be offered in two forward TAF auctions in November to $150 billion each as it tries to ease end-of-year funding strains.
In all, the Fed said $900 billion in TAF credit would be available for year-end needs.
Despite the aggressive effort to ease credit strains, the blue-chip Dow Jones industrial average tumbled 250 points, or 2.5 percent.
A $700 billion U.S. bailout package failed to quiet investors' concerns that the U.S. financial system and the broader economy have been badly weakened by a year-long credit crisis. A series of bank rescues in Europe over the weekend added to concerns that the problems were quickly spreading.
The President's Working Group on Financial Markets, a committee of top financial regulators that President George W. Bush convened to address the crisis, said market conditions were extremely strained.
The complexity of the crisis meant policy-makers needed to use all tools available "in forceful and coordinated ways across regulatory and supervisory agencies in the United States and throughout the world, ", the group said.
"This will involve moving with substantial force on a number of fronts," it added.
In a separate statement on Monday, the U.S. central bank said, "The Federal Reserve and the Treasury Department are consulting with market participants on ways to provide additional support for term unsecured funding markets."
The move was another effort to try to restore normal lending to short-term markets that have become frozen as banks grow increasingly wary of lending to one another.
"Together these actions should encourage term lending across a range of financial markets in a manner that eases pressure and promotes the ability of firms and households to obtain credit."
The Fed also said it "stands ready" to take additional measures to restore normal market functioning.
(Reporting by Mark Felsenthal and Patrick Rucker; Writing by Emily Kaiser; Editing by Kenneth Barry)