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PARIS - Central banks pumped tens of billions of dollars into markets on Monday to prevent the collapse of US bank Lehman Brothers from triggering a global system failure, and officials called for calm.
US Treasury Secretary Henry Paulson insisted US authorities would do everything to maintain stability after Lehman Brothers investment bank filed for bankruptcy, sending shock waves through global financial markets.
The US Federal Reserve eased the collateral conditions on which it provides funds, aiming to avert any risk of systemic failure caused by credit drying up.
The European Central Bank injected 30 billion euros (42.7 billion US dollars) in a one-day special operation while the Bank of England said it had provided 5.0 billion pounds (6.3 billion euros/9.0 billion US dollars).
Both operations met strong demand and were intended to keep banks lending to each other and prevent a freeze-up provoked by Lehman Brothers's collapse.
The Bank of England said its action was "being taken in response to conditions in the short-term money markets" in early trading on Monday.
The US treasury secretary said: "I am committed to working with regulators and policymakers ... to take necessary and appropriate steps to maintain the stability and orderliness of our financial markets."
"I will engage with regulators and policymakers around the world to that end," Paulson said in a statement, adding: "I am confident in the resilience of our capital markets."
In Brussels the European Commission said it was confident that international banking bodies would be able to work effectively together in the face of a US-born financial crisis.
"The Commission in general and (EU Economic Affairs) Commissioner (Joaquin) Almunia are closely following developments," said Commission spokesman Johannes Laitenberger.
He said the Commission was "confident of good coordination, as well as a solution, among central banks, regulators and the private sector."
Nobel Prize-winning economist Joseph Stgilitz said the crisis now gripping
financial markets should be less serious than that caused by the 1929 stock market crash in the United States, which led to the Great Depression.
"The general view is that we have instruments, monetary and fiscal policy, that we know how to prevent another great depression," he told AFP.
After emergency talks over the weekend, Lehman Brothers opted for bankruptcy when it could not find a buyer without a government guarantee against the mounting losses from its exposure to the US sub-prime home loan crisis.
At the same time, Bank of America took over Merrill Lynch in a 50-billion-US-dollar deal and insurance giant AIG was reported to have sought a massive emergency loan to head off its own crisis.
Central banks pumped large amounts of money into markets to ease funding pressures.
Paulson said the intervention "will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets."
"I particularly appreciate the efforts of market participants who came together this weekend and initiated a set of steps to facilitate orderliness and stability in our financial markets as we work through this extraordinary environment," he said.
Alan Greenspan, the former Federal Reserve chairman, said the United States was in a "once-in-a century" financial crisis.
"First of all, let's recognize that this is a once-in-a-half-century, probably once-in-a-century type of event," Greenspan said on ABC television.
"There's no question that this is in the process of outstripping anything I've seen and it still is not resolved and it still has a way to go," Greenspan said, adding that the country would be unlikely to escape recession now.
The risks are not to be underestimated this time, analysts said, after months of a phoney war when many had been prepared to talk about the "worst being over" despite mounting losses as more and more sub-prime loans went bad.
"We are witnessing a turning point in the modern history of the financial system as three major brokers have now disappeared from the scene," Unicredit economist Marco Annunziata said, referring to Lehman Brothers, Merrill Lynch and Bear Stearns which had to be rescued earlier in the year.
"The coming days and weeks will be truly crucial to the global economic outlook."
Japan's financial watchdog, the Financial Services Agency, said it had ordered Lehman Brothers' Japan unit to retain certain assets in Japan so it can meet any liabilities.
German banks' links to the collapsed Lehman Brothers are "manageable and can be dealt with," the German finance ministry said, adding it was in close contact with its international partners.
- AFP/ir
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