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The European Central Bank brought forward plans to lend banks unlimited cash and pumped a record $100 billion in overnight funds into the financial system after an interest-rate cut failed to soothe tensions in money markets.
The Frankfurt-based ECB lent banks an additional 24.7 billion euros for six days, filling all bids at its new benchmark rate of 3.75 percent under new auction rules it had intended to introduce next week. The Frankfurt-based central bank yesterday lowered its key rate from 4.25 percent.
The U.S. Federal Reserve and the ECB led a global round of rate cuts in an effort to shore up confidence in a financial system roiled by a wave of banking collapses. The cost of borrowing in euros for three months nevertheless held at a record high today.
Commercial banks are refusing to lend to each other after the U.S. housing slump caused the collapse of New York-based Lehman Brothers Holdings Inc. That's pushed market interest rates to records even as the ECB and other central banks injected billions of euros and dollars into the banking system.