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Global banks agree $70 billion fund to ease credit crunch

Article published on the 2008-09-15 Latest update 2008-09-16 07:00 TU

Headquarters of Lehman Brothers, New York(Photo: Reuters)

Headquarters of Lehman Brothers, New York
(Photo: Reuters)

Stock markets in different regions of the world saw their indexes fall by between two and five per cent on Monday. Investor confidence sank after a declaration of bankruptcy by the fourth-largest banking institution in the United States, Lehman Brothers.

Lehman Brothers filed for bankruptcy protection on Monday morning, after prospective bidders refused to buy the bank without government support.

This announcement saw the financial heavyweights move to try to shore up markets.

Charles Goodhart, an economist at the London School of Economics told RFI that, "it's a major shock, but that's less important than the consequences may be, and we won't know what they will be for some time."

Analysis: Charles Goodhart, London School of Economics

15/09/2008 by David Page

In a joint statement, the Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, and the Swiss bank UBS, said they "have begun a series of actions to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."

Those actions include establishing a special $70 billion-borrowing facility to help ease access to credit with each bank contributing seven billion dollars.

The European Central Bank said it injected 30 billion euros into money markets on Monday to keep them going after the collapse of Lehman Brothers. The Bank of England said it had put up 6.3 billion euros to ensure sufficient liquidity.

The 158-year-old banking institution lost almost four billion dollars in the third quarter this year, after having to cope with significant depreciation of its housing loan portfolio assets.

European stock markets fell between two and five percent in trading on Monday.

Meanwhile, the Bank of America agreed to buy financial consultant Merrill Lynch for $50 billion, to form the world's largest financial service group.