Sept. 18: The world’s top central banks joined forces on Thursday to throw a multi-billion dollar lifeline to global markets in a dramatic effort to free bank-to-bank lending, frozen by the upheavals on Wall Street.

The US Federal Reserve forked out an extra $180 billion to major central banks which they could lend to their local commercial banks to keep dollars circulating within the world’s financial system, especially in the short-term funding markets.

Central banks including the Federal Reserve, the Bank of England and the European Central Bank also lent extra funds in their own currencies in the wake of a round of takeovers and mergers among the top financial firms and renewed fears about how the US economy would weather the storm.

The cash injection was designed to quell a loss of faith in the markets and rapidly eroding trust in banks.

Central banks responded to a jump in inter-bank lending rates, exacerbated by investors’ flights in the safe havens of gold and government bonds, by flooding the market with cash and verbal reassurances.

Analysts said the extra funds calmed markets but felt the relief might be only temporary since the demands for the extra funds were mixed.

Euro-zone banks bid for more than $100 billion of the dollar funds — more than double the $40 billion on offer. However, their British counterparts showed little interest at the BoE’s first dollar auction but bid £202.3 billion ($359.9 billion) for the £66.21 billion on offer in an open market operation. The Bank of Japan and the Bank of Canada also took part in the global action, which is in place until the end of January next year. They agreed to new dollar swap lines with the Fed but did not announce immediate plans to use them.

The concerted action by the leading central banks followed a rout in the markets gripped by fears of more Wall Street failures after Lehman Brothers filed for bankruptcy, Merrill Lynch lost its independence, an $85-billion US government bailout of insurer AIG and Morgan Stanley started looking for a buyer.

Russia poured money into its banks and China said it would raise its equity stakes in state-funded banks that have lost market value in the global meltdown.

In his first reaction to the global crisis, finance minister P. Chidambaram said India’s financial institutions and banks were in sound financial health and there was no cause for alarm that they might be affected by the turmoil.

He said there could be a credit crunch in India’s financial system because of the global crisis but the government was ready to pump in money to tide over any shortage.