Banks Join Forces to Combat Capital Market Turmoil
Wednesday, September 17, 2008
Ten of the largest commercial and investment banks in the world joined forces over the weekend, stepping up to the plate to address the growing turmoil in the financial sector – turmoil that became gravely apparent with the collapse of Lehman Brothers yesterday. The member banks include: Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, UBS, and Merrill Lynch, who announced its acquisition by Bank of America just yesterday. The consortium has initiated a series of actions it says will help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting the global equity and debt markets.
According to the banks themselves, specifically, they are working together to do the following:
• First, to assist in maximizing market liquidity through their mutual commitment to their ongoing trading relationships, dealer credit terms, and capital committed to markets.
• Second, to establish a collateralized borrowing facility, the ten banks have committed to fund for $7 billion each ($70 billion in total). The facility will be available to these participating institutions for liquidity up to a maximum of one third of the facility for any one bank. It is anticipated that the size of the facility may increase as other banks are permitted to join the facility.
• Third, to help facilitate an orderly resolution of OTC derivatives exposures between Lehman Brothers and its counterparties. This effort included opening the OTC derivatives market for trading last Sunday afternoon.
The banks' cooperative efforts are enhanced by the Federal Reserve Board's recent decision to ease its lending terms with the acceptance of expanded classes of collateral – including equities and loans – under the Primary Dealers Credit Facility. All participating banks said they intend to utilize this facility as early as this week.
The consortium's actions reflect the extraordinary market environment, the banks said in a press statement. The banks are committed to continuing to work closely with one another as well as the U.S. Treasury Department, the Federal Reserve, the Securities and Exchange Commission, governments and regulators around the world, and other market participants, to ensure the industry is doing everything it can to provide additional liquidity and assurance to our capital markets and banking system, the consortium said in its statement.
According to the banks themselves, specifically, they are working together to do the following:
• First, to assist in maximizing market liquidity through their mutual commitment to their ongoing trading relationships, dealer credit terms, and capital committed to markets.
• Second, to establish a collateralized borrowing facility, the ten banks have committed to fund for $7 billion each ($70 billion in total). The facility will be available to these participating institutions for liquidity up to a maximum of one third of the facility for any one bank. It is anticipated that the size of the facility may increase as other banks are permitted to join the facility.
• Third, to help facilitate an orderly resolution of OTC derivatives exposures between Lehman Brothers and its counterparties. This effort included opening the OTC derivatives market for trading last Sunday afternoon.
The banks' cooperative efforts are enhanced by the Federal Reserve Board's recent decision to ease its lending terms with the acceptance of expanded classes of collateral – including equities and loans – under the Primary Dealers Credit Facility. All participating banks said they intend to utilize this facility as early as this week.
The consortium's actions reflect the extraordinary market environment, the banks said in a press statement. The banks are committed to continuing to work closely with one another as well as the U.S. Treasury Department, the Federal Reserve, the Securities and Exchange Commission, governments and regulators around the world, and other market participants, to ensure the industry is doing everything it can to provide additional liquidity and assurance to our capital markets and banking system, the consortium said in its statement.
