Federal Reserve Makes Billions Available to Battle Crisis

WASHINGTON - The Federal Reserve and foreign central banks agreed to pump billions of dollars into the global financial system Monday to unlock tight lending that threatens to unhinge the U.S. economy.

The Fed said the action is intended to "expand significantly" the cash available to financial institutions in an effort to relieve to the worst credit crisis since the Great Depression. In taking the action, the Fed cited "continued strains" in the demand for short-term funding.

Central banks will continue to work closely and are prepared to take "appropriate steps as needed" to ease the crisis and get banks lending again, the Fed said.On

Wall Street stocks dropped sharply even after the Fed's announcement. At one point in the afternoon, the Dow Jones industrials plunged more than 700 points after the House voted down a massive financial rescue package.

Under one new step, the Fed will boost the amount of 84-day cash loans available to U.S. banks. The Fed is increasing the amount to $75 billion, up from the current $25 billion starting on Oct. 6. Banks bid on a slice of the loans at an auction.

That move will triple the supply of 84-day loans to $225 billion, from $75 billion, the Fed said.

Meanwhile, the Fed will continue to make $75 billion worth of shorter, 28-day loans available to banks. All told, the total amount of cash loans — 84-day and 28-day — available to banks will double to $300 billion from $150 billion, the Fed said.

Moreover, the Fed made an extra $330 billion available to other central banks. That boosted to $620 billion the total amount available to the central bank through currency "swap" arrangements, where dollars are traded for their currencies. That total is up from $290 billion previously being made available through such arrangements.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank and the central banks of Denmark, Norway, Australia and Sweden are involved in those swap arrangements.

"We are experiencing a massive credit implosion," said T.J. Marta, a fixed-income strategist at RBC Capital Markets.

The move comes as the U.S. financial meltdown's tendrils have ensnared banks in Britain, the Benelux and Germany.By pledging to provide "a very large" cash infusion, the Fed hopes the actions will "reassure financial market participants."

The Fed action came hours before the House defeated a $700 billion financial bailout plan, ignoring urgent pleas by President George W. Bush and Bernanke to move swiftly.

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P.S. We're being swindled, folks.