In an effort to provide liquidity to cash-strapped financial institutions, the Federal Reserve will lend up to $200 billion of treasury securities to bond dealers in exchange for collateral such as mortgage-backed securities.
The securities will be made available through an auction process.
Auctions will be held on a weekly basis, beginning on March 27.
Additionally, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements the European Central Bank, the Bank of England and the Swiss National Bank and the Bank of Canada.
Under the arrangements, The European Central Bank said it would offer $30 billion in loans, while the Swiss National Bank will offer $6 billion in loans.
The Bank of England said it would extend its ten billion pound lending program.
The Bank of Canada will auction $4 billion in 28-day repurchase agreements over the next month.
The actions, which were announced today, supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will equal $100 billion (InvestmentNews, March 8) .
The announcement pushed markets to their biggest one-day percentage gain since 2003.
In late-afternoon trading, the Dow Jones Industrial Average rose 357.96 points to 12098.11, the Nasdaq jumped 72.15 to 2241.49 and Standard & Poor's 500 increased 39.18 to 1312.55.