Dow Jones Newswires
Central banks on both sides of the Atlantic Ocean are actively engaged in discussions about the feasibility of using public funds in mass purchases of mortgage-backed securities as a possible solution to the credit crisis, the Financial Times reported on its Web site Friday.
These talks were part of a broader exchange on possible future steps in battling financial turmoil and are at an early stage, the FT added.
The Bank of England seemed the most eager to explore the idea, the newspaper said, adding that the U.S. Federal Reserve was open in principle to the possibility that MBS intervention might be justified in certain situations, but only as a last resort. And the European Central Bank appeared to be least enthusiastic.
The Fed doesn＇t believe the point has yet been reached when such drastic action is necessary and considers the talks it has had with its counterparts as "blue-sky thinking" rather than the formulation of a definitive policy proposal, according to the FT.
Still, Fed officials are monitoring the impact of its latest round of liquidity moves and interest rate cuts. The Fed also believes the U.S. hasn＇t yet exhausted all the options short of wholesale public intervention and further intermediate steps are available to them - including even more aggressive use of the its own balance sheet to boost liquidity in the markets, the FT said.
Analysts say the U.S. government also has plenty of scope to boost support for the markets indirectly through the Federal Housing Administration or Fannie Mae (
FNM) and Freddie Mac (
FRE), according to the FT.
The U.K. lacks these institutions, which could be one reason why the Bank of England was the most eager to try outright intervention, the newspaper said. The U.K. government already has become heavily involved in buying mortgages with its recent nationalization of Northern Rock.
Newspaper Web site:
http://www.ft.com
March 21, 2008 18:43 ET (22:43 GMT)
