The Federal Reserve has taken further steps to support banks struggling with liquidity shortages after admitting credit conditions were still strained.

The US central bank will extend its loan programme to investment banks - enabling firms to access cash quickly - until next January.

It will also increase the length of loans available to all banks from the current 28 days to 84 days.

Banks are still unwilling to lend to each other after the sub-prime crisis.

'Fragile'

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Announcing the enhanced liquidity measures, the Fed said that financial markets remained "fragile".

Its programme of financial support for investment banks, introduced after the near collapse of Bear Stearns in March, is being extended from September to 30 January.

Under the schemes, banks can borrow US Treasury securities in return for a range of collateral, including certain mortgage backed assets.

The move is designed to breathe life into the market for mortgage-backed securities which has been moribund since the credit crunch struck a year ago.

An extra $50bn will be available for banks in addition to the $200bn already set aside, earmarked particularly for times of "elevated stress" in financial markets.

In another move, the Fed's bi-weekly credit auction for retail banks will now offer loans over an extended period of 84 days.

Currently, the loans it has offered mature after 24 days.

The European Central Bank and the Swiss National Bank will follow suit by making longer-term loans.

The Fed has progressively extended its assistance to banks as the credit squeeze has shown no sign of easing and the prospects for the US economy have worsened.

The extra assistance would be withdrawn should credit markets return to normal, the Fed stressed.

(BBC)

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