[jyl]

Large banks routinely lend and borrow cash with other banks, for short periods - 1 to 30 days - to meet withdrawals, currency exchanges, and similar operational needs.

This inter-bank lending has completely broken down. Banks are no longer willing to lend even to each other. LIBOR has soared to almost 7% but little or no inter-bank lending is actually taking place at that rate. This is dangerous for the banking system, as banks could be forced to dump other assets, fail to meet obligations, or suffer "runs on the bank". It is not helpful that it’s the end of the fiscal quarter.

Central banks around the world, including Fed, are stepping in to increase short-term lending to banks, to temporarily replace the inter-bank lending market. Also central banks are increasing their credit (swap) lines to each other. The central banks normally do this sort of lending, but they're being forced to do it on a much larger scale now. Basically to prevent, potentially, the next step of the global banking crisis..

These are short-term loans, 1 to 30 days, so must be repaid quickly. Secured by bank assets, but those assets stay on the banks' balance sheet, thus the banks remain exposed if those asset values decline. Which is, in large part, why the banks have ceased ending to each other - they don't know which bank is going to fail next.

Different from treasury rescue plan, which is to buy certain assets from the banks, removing them entirely from the banks' balance sheet. Idea is to help stabilize balance sheets.

Incidentally, LIBOR is the rate that determines the interest rate on many adjustable rate loans, including some ARM mortgages, many business credit lines, etc. So When LIBOR goes up from 3% to 7%, that will increase the cost for many businesses and consumers.