Economists and market specialists say policy makers are trying to reassure bankers that they will stand firm as the lenders of last resort. The coordinated action is being led by the Fed, which will lend $40 billion this month. The European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Canada will lend $50.2 billion this month and next.
“This is basically a reinsurance policy,” said William H. Gross, chief investment officer of the bond management firm Pimco. Central bankers “are saying, ”˜We will stand behind you.’ “
He added, “Now it’s up to the private market to gain a little confidence and turn a little macho and start performing on its own.”
Fed officials said that the move was an effort to improve financial markets, not a response to problems at specific banks, and that it was in the works well before investors reacted negatively to the Fed’s modest interest rate cut on Tuesday.
“This is not about particular financial institutions with particular problems,” a senior Fed official told reporters. “It is about market functioning.”