WASHINGTON The Federal Reserve announced Wednesday it is coordinating with other central banks to deal with the global credit crunch.
The central bank said it had reached an agreement with the European Central Bank as well as the Bank of England, the Bank of Canada and the Swiss National Bank to address what it termed "elevated pressures" in credit markets.
The Fed said that it was creating a temporary auction facility to make funds available to banks and was also setting up lines of credit with the European Central Bank and the Swiss Central Bank that could be used for additional resources.
The Fed said that commercial banks would be able to bid at auction for funds that would be drawn from the Temporary Auction Facility. The money would be intended to help cash-strapped banks raise money needed to keep making loans to businesses and consumers.
The action represented another step by the Fed to deal with a serious credit crunch stemming from the tightening of bank lending standards in the wake of multibillion dollar losses from a rising tide of defaults on mortgage loans.
The Fed's announcement came a day after it cut a key interest rate for the third time this year. That quarter-point rate cut disappointed Wall Street, which pushed the Dow Jones industrial average down by 294 points. Investors had hoped for a bolder response to the growing housing and mortgage crisis in the United States.
The Fed said all banks judged to be in generally sound financial condition by their Fed regional bank would be eligible to participate in the auctions for funds.
The first auction of $20 billion was scheduled for next Monday, followed by another auction of $20 billion on Dec. 20. The third and fourth auctions will be in January.
The Fed said that the new auction process should "help promote the efficient dissemination of liquidity" when other lines of credit were "under stress."