Emergency help for financial markets entered new territory on Monday night as the European Central Bank announced it would on Tuesday offer unlimited funds at below market interest rates in a special operation to head off a year-end liquidity crisis.


The surprise move, which follows last week's co-ordinated barrage of measures by the world's central banks to increase market liquidity, suggests the ECB is still frustrated at the failure to ease market tensions.


The ECB had already announced that Tuesday's regular weekly money market operation would mature on January 4 - covering the year-end when financial institutions will be under pressure to show strong liquidity on their books.


But on Monday night it said in addition that it would satisfy all bids offering 4.21 per cent or more. Prior to the announcement, the cost of borrowing two-week money had soared to 4.9 per cent but fell sharply afterwards as the ECB's move in effect put a cap on market interest rates.


The move could trigger a surge in demand for ECB liquidity. In last week's regular seven-day auction, the ECB allocated EU218.5bn at an average rate of 4.21 per cent - the rate chosen as the cap for Tuesday's operation.


The ECB offered little explanation for its move beyond saying that it was "fully consistent" with its aim of keeping interest rates close to its main policy rate of 4 per cent.


The latest move underlines the limited impact of last week's co-ordinated intervention which included a new liquidity facility at the US Federal Reserve.


http://news.yahoo.com/s/ft/20071217/bs_ft/fto121720071425318....


Note:

When banks have no money coming in from private sector investors, there is no money available to roll over, originate or service existing debt, that is what these emergency loans are being used for, without a loan, from the CBs, they are insolvent.

They are buying time that has run out.

There is no way these CB drops in the bucket can replace the amount of private sector money that is no longer available or the amounts that are flowing out due to default and redemptions.