Global central banks act on credit crunch

WASHINGTON - Several top central banks including the Federal Reserve and the European Central Bank on Wednesday announced the launch of a new temporary term auction facility designed to address elevated pressures in short-term funding markets.

Under the program, the Federal Reserve will auction short-term funds to depository institutions against a wide variety of collateral that can be used to secure discount window loans. The program also includes establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank.

The Bank of England also joined in the announcement issued by the Federal Reserve in Washington.

The first auction under the program will be $20 billion (9.74 billion pounds) in 28-day term funds on Monday, settling December 20, with a second auction of $20 billion in 35-day funds scheduled for December 20, settling on December 27. Subsequent auctions are scheduled on January 14 and 28.

"Experience gained under the temporary program will be helpful in assessing the potential usefulness of augmenting the Federal Reserve's current monetary policy tools -- open market operations and the primary credit facility -- with a permanent facility for auctioning term discount window credit," the Fed said.