Central banks pump more cash into ailing financial system

The world's central banks continued to pump new cash into the global economy onWednesday as governments desperately tried to keep the ailing financial system in North America and other industrialized regions afloat.

The Bank of Japanbecame the latest to join the money-lending parade, extending more than $28 billion US in new cash for companies.

The Japanese central bank is eyeingfirms,mainly in the financial services sector, that either have hugelosses from owningfaulty debtor have invested in firms that have this type of nearly worthlessasset on their income sheets.

Already this week,theglobal financial system has beenrocked bythe bankruptcy of U.S. investment bank Lehman Brothers, the buyoutof Merrill Lynch & Co. by the Bank of America and Tuesday's breathtaking takeover of insurer American International Group Inc. by the U.S. Federal Reserve.

In response to the turmoil, centralbanks beganinjecting huge amounts of cash into theworld financial system in an effort to make sure thatfirms needing monetary resources to stay afloat could actually find some.

"While the first-round effect from Lehman's failure on the economy and the financial markets is limited in Japan, the risk of the larger-than-expected second-round effect through a global recession and global financial turmoil is growing," said Masaaki Kanno, chief economist at JP Morgan Securities in Tokyo.

The Bank of Japan was not alonein extending a financial helping handon Wednesday.

The Bank of Russia also mademore money, in this case $44.9 billion worth of rubles, available for Russian banks and financial companiesthat arefacinga tougher time accessing cash to fund their operations.

So far, the Bank of England, which printed new money to the tune of $35.6 billion on Tuesday, said itwas not planning to make yet another similar move Wednesday.

But already this week, the British central bank, the U.S. Federal Reserve, the European Central Bank andthe Swiss central bank, among others, have injectedclose to $400 billion into the global financial system.

The Bank of Canada and other government banks have relaxed the type of security that borrowers can use as collateral, another way of extending credit.

No bailout

The central banks' cashis notbailout moneybut is instead a way toensure that firmshave access toa pool of available funding.

Right now,ailing corporationssuch as AIG andthe largest U.S. savings-and-loan company, Washington Mutual Inc., need such large amounts of money to recapitalize their balance statements that other, more investment-grade institutionshave troublefinding money for their own needs.

Add to this problem thetendency forlenderstobe waryofmaking credit available in an economic slowdown, and you have a classic borrowing crunch.

As a sign of the global cash squeeze, central banks areseeing furious bidding when they putshort-termloans up for auction,one method by which they extend credit to the marketplace.

For example, on Tuesday, Russia's government bank saw a record amount of cash, $14 billion, snapped up by private companies.