ECB Offers Unlimited Funds, BOE Ready to Help Market

By John Fraher

Sept. 15 (Bloomberg) -- The European Central Bank said it will offer financial institutions as much money as they need after Lehman Brothers Holdings Inc.'s application for bankruptcy threatened to derail global markets.

The ECB called for bids at a minimum rate of 4.25 percent in an auction at 10:15 a.m. in Frankfurt. Earlier, the Swiss central bank offered additional liquidity through its overnight facility for the first time since Feb. 22. The Bank of England also said it will take ``appropriate actions if necessary'' to ease money- market tension.

Stocks plunged and bonds surged across Europe today after Lehman became the latest victim of a yearlong credit crisis. Financial institutions worldwide have reported more than $500 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year.

The Federal Reserve has already responded by widening the collateral it accepts for loans to securities firms. A group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. separately formed a $70 billion fund to ensure market liquidity.

The ECB is likely to inject more funds into the financial system through its money-market operations ``relatively soon,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc. Still, the crisis may have to worsen further before the ECB considers cutting interest rates.

``The ECB would probably need to be convinced that credit markets have seized up or see a vicious downward spiral in equity markets to participate,'' said Cailloux.

To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.net