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By Chen Gang, Xinhua
NEW YORK: The US Federal Reserve’s
announcement Sunday to lower its emergency lending rate was the
latest in a series of moves aimed at stabilizing the financial
market, analysts said.
To boost liquidity, the central bank approved a
cut in its emergency lending rate to financial institutions to 3.25
percent from 3.50 percent in a rare weekend move. Also on Sunday,
the Fed, the Treasury Department and other government agencies gave
the green-light for JP Morgan Chase to acquire Bear Sterns, which
was on the brink of collapse. Since the outbreak of the subprime
crisis last year, the Fed has come up with many measures to
stabilize the financial market, including cutting fund interest
rates and discount rates, capital infusion into the financial
market, and easing restrictions on collaterals.
And then there was the “discount window”
lending facility for primary dealers, the first time the Fed to do
so since the 1929 Great Depression. Traditionally, the Fed’s
emergency lending “ discount window” only opens to commercial
banks in need of short- term cash.
The Fed’s decision last Friday to provide
emergency funds through JP Morgan Chase to Bear Stearns, the fifth
largest investment bank in the country, to help Bear tide over its
liquidity crisis, was also the first time since 1929 for the central
bank to provide emergency capital to a non-commercial bank.
“The fundamental objective of these
moves by the Fed is to boost confidence in the market,” said
Benjamin Wey, president of investment bank and consulting firm New
York Global Group.
Li Shanquan, vice president and portfolio
manager of Oppenheimer Fund, said the Fed’s move to save Bear
Stearn was designed to forestall the likely gigantic shock in the
financial market if Bear went under when its liquidity dried up.
“If the US government didn’t offer a helping
hand, the turmoil on the financial market would further
deteriorate,” Li said.
US Treasury Secretary Henry Paulson said Sunday
that the Fed’ s rescue of Bear Stearns would prevent other
financial firms and even the whole U.S. financial system from
suffering even greater harm.
The government will take various necessary
measures to ensure the stability of the financial market, Paulson
said.
The latest Fed moves, however, apparently failed
to assuage worries in the market. By noon Monday, the Dow Jones
Industrial Average shed more than 120 points, after going down
nearly 200 points in early trading. Key indexes fell by more than 3
percent in Asia’s Hong Kong and Tokyo bourses.
Some analysts say the urgency of the Fed moves
strengthened market worries on a deepening of credit crunch brought
by the sub- prime crisis.
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