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Central banks scrambling for cash

Wednesday, September 3, 2008, 6:43 AM
 

British banks soon could be scrambling for
short-term funding once more amid reports that supplies from
Threadneedle Street and from Frankfurt may be drying up.

The
Bank of England explicitly ruled out extending its Special Liquidity
Scheme (SLS), while the European Central Bank is reportedly considering
tightening its lending criteria.

The two central banks have
been huge suppliers of liquidity to British banks. The SLS is thought
to have provided £50 billion or more, while the ECB has lent banks €467
billion (£378 billion) - much of it thought to have gone to UK
institutions.

Here is yet
another indication that Europe is both in the clutches of a major
crisis and is dealing with it more openly than the US.

I find
it odd that the US was the major developer and purveyor of the toxic
debt that now infects the world banking system, yet the US still enjoys
broad support from Europe’s central banks, which have been helping to
prop the dollar and bail out their own banks. I suspect that if the
tables were turned, the US would simply mail back the bad debt and make
the other party pay up. But that’s just a guess.

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