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December 18th, 2007

They’re just shredding the confetti into more confetti at this point.

Via: Bloomberg:

Money market rates tumbled after the European Central Bank injected an unprecedented $500 billion into the banking system as part of a global effort to ease gridlock in the credit market.

The amount banks charge each other for two-week loans in euros dropped a record 50 basis points to 4.45 percent, the European Banking Federation said today. The rate had soared 83 basis points in the past two weeks as banks hoarded cash in anticipation of a squeeze on credit through the year-end.

“These are strong-arm tactics intended to show the market they’re seriously committed to breaking the deadlock,” said Marc Ostwald, a fixed-income strategist at Insinger De Beaufort SA in London. “The ECB is helping to bankroll banks out of a problem that they themselves created.”

The decline is the first sign attempts by policy makers to revive interbank lending are succeeding since the Federal Reserve last week announced the biggest coordinated central bank action since the Sept. 11, 2001, terrorist attacks. More than $70 billion of losses on securities linked to U.S. subprime- mortgages have left banks reluctant to lend to each other.

The ECB loaned a record 348.6 billion euros ($501.5 billion) for two weeks at 4.21 percent today, almost 170 billion euros more than it estimated was needed. Bids were received from 390 banks, ranging from 4 percent to 4.45 percent. The central bank first offered extra cash on Aug. 9, when it lent 95 billion euros of emergency funds. Banks also borrowed about 2.4 billion euros at 5 percent yesterday, the most since Sept. 26, the ECB said.

The three-month euro-borrowing rate fell 7 basis points to 4.88 percent, down from near a seven-year high, the EBF said.

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