Central Banks Cut Rates; Treasury Considers Direct Bank Infusion

In an unprecedented move, the world's central banks decided Wednesday to lower short-term policy interest rates in unison by a half percentage point. News of the rate cut was followed shortly by a statement from U.S. Treasury Department Secretary Henry Paulson indicating last week's $700 billion bailout empowers the Treasury to directly invest in banks and that the Treasury is considering such action.

The separate moves aim to stem the growing financial crisis, with the latter announcement meant to quell concerns about the difficulty banks have lending to one another.

The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank (Bank of Sweden) and the Swiss National Bank also announced reductions, and the Bank of Japan is said to support the actions.

In his statement, Paulson said the federal government's policy demands use of all resources at its disposal to strengthen the financial system.

"In light of current conditions, the [Federal Deposit Insurance Corp.], with the full support of the Fed and the Treasury, will use its authority and resources as appropriate to mitigate systemic risk [by appropriately] protecting depositors, protecting unsecured claims, guaranteeing liabilities and adopting other measures to support the banking system," the statement reads.

To view the central banks' joint statement, visit www.federalreserve.gov. To see Paulson's statement, go to www.ustreas.gov.

SOURCE: Federal Reserve, U.S. Treasury Dept.


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