Fed boosts Euro banks

September 13, 2001 Posted: 1745 GMT

Washington (CNN) -- Moving to head off possible financial disruptions, the Federal Reserve announced Thursday an emergency move to provide up to $50 billion to European banks whose U.S. operations have been disrupted by the terrorist attack on Manhattan.

The swap arrangement will allow the European Central Bank to draw dollar deposits from the Federal Reserve Bank of New York, and in exchange the ECB will make equivalent deposits of euros at the New York fed.

Under the arrangement announced by the U.S. central bank, the ECB would be able to draw up to $50 billion, while the Federal Reserve Bank of New York will get an equivalent amount of deposits in euros, the ECB's sponsored currency.

"The ECB will make these dollar deposits available to national central banks of the Eurosystem, which will use them to help meet dollar liquidity needs of European banks, whose U.S. operations have been affected by the recent disturbances in the United States," the Fed said in a statement.

The swap line is set to expire in 30 days, the Fed said.

Meanwhile, there is growing conviction among economists that the Federal Reserve could lower interest rates when U.S. stock markets reopen in an effort to prevent the economy from tipping into recession in the wake of Tuesday's terrorist attacks on New York and Washington.

The Fed has cut its target for short-term interest rates seven times so far this year, from 6.5 percent to 3.5 percent, hoping to recharge a sagging economy.

Separately, the European Central Bank on Thursday left interest rates on hold in a bid to soothe markets, despite concerns the terror attacks on the U.S. could trigger a recession.

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