The European Central Bank scrambled to head off a potential financial crisis on the region’s money markets, after signs that liquidity was drying up. Thursday by making an emergency injection. This liquidity injection was designed to ensure that money markets continued to function and did not succumb to a credit freeze. The Federal Reserve followed suit although in far less dramatic fashion. The ECB did not offer any detailed explanation for its move, which caught markets by surprise, but simply said it was now seeking to ‘assure orderly conditions in the euro money market’. However, it came as several financial institutions, such as BNP Paribas, admitted they had suffered significant losses as a result of investments linked to the credit markets. Many of these are linked to problems in the US subprime mortgage sector. It also came amid signs that liquidity has recently evaporated from parts of the European inter-bank market, pushing overnight borrowing rates sharply higher. Ed Marrinan, head of credit strategy at JPMorgan, said: ‘This appears to be a prudent, pre-emptive step to head off any possibility of liquidity problems.’ The FTSE, the leading UK stock index, lost 1.83 per cent, while Germany’s […]