As investor anxiety deepened despite U.S. congressional passage of a $700 billion Wall Street bailout package Friday, the Fed announced that it would double its auctions of cash to banks to as much as $900 billion, pay banks interest on reserves and consider further actions as needed.
"The Federal Reserve stands ready to take additional measures as necessary to foster liquid money-market conditions," the central bank said in a statement.
Bank shares across the continent tumbled, and the euro fell to a 13-month low against the dollar after the German government on Sunday increased a bailout of Hypo Real Estate Holding AG to €50 billion ($68 billion), while France's largest bank BNP Paribas SA came to the rescue of the Belgian government with a €14.5 billion deal to buy the Belgian and Luxembourg operations of Fortis SA/NV.
In Iceland, fears for the country's leading banks, including Kaupthing Bank hf, deepened after the government failed to come up with a bailout and said it would ask them to sell foreign assets instead. In Italy, the largest bank, Unicredit SpA, announced plans to raise €6.6 billion of new funds, admitting that it had underestimated the impact of the credit freeze on its operations.
In clogged credit markets, the London interbank offered rate, which banks charge one another for overnight loans, shot up in midday trade to 2.37%, from Friday's close of 2%. However, in a sign of mild improvement, the rate for three-month loans fell 5 basis points to 4.29%.
Stock markets fell across Europe on fears that the financial crisis was accelerating and that European governments' uncoordinated response would leave the regions' lenders vulnerable. - Paul Whitfield
