The Western central banks are opening the money taps at full blast in an effort to head off a liquidity crisis.

The European Central Bank today allocated more than $500 billion in euros to banks at below-market interest rates. Banks with sufficient collateral submitted bids at interest rates as low as 4.2 percent.

The Bank of England, meanwhile, offered 10 billion pounds, or more than $20 billion, at a minimum bid of an interest rate of 5.4 percent.

The British central bank's operation was part of a global coordinated effort among the Federal Reserve, the Bank of Canada, and the Swiss National Bank, as well as the E.C.B. and the Bank of England. On Monday, the Fed auctioned $20 billion of funds as part of the effort. The results will be announced on Wednesday.

But the huge additional infusion of cash by the E.C.B. suggests that the coordinated action by itself might be insufficient to stabilize credit markets.

"The operation is highly unusual and heterodox; and while getting creative in dealing with liquidity crunches may be appropriate, this action signals some desperation on the part of the E.C.B.," says Nouriel Roubini on his blog. The E.C.B., he notes, is the only Group of Seven central bank other than the Bank of Japan that has not eased on interest rates.

"And since most financial and other private contracts are indexed to Libor, an average Libor that is about 100 basis points above policy rates, it is equivalent to the E.C.B. having raised its policy rate by 100 basis points in the last few months," Roubini says.

Central bankers are worried that a crisis of confidence among banks is freezing up money for lending and financing.

"In the last four weeks, banks themselves have been worried that the impact of their reluctance to lend will lead to a sharper slowdown in the United States," Mervyn King, the governor of the Bank of England, told a British parliamentary committee today, according to Reuters.

"That concern is a serious one because it does hold out the prospect that there will be a self-reinforcing downturn in credit and activity."

Others are skeptical of the actions by the central banks.

"This is basically Father Christmas to those who have access," Erik Nielsen, an economist at Goldman Sachs, told the Financial Times. "They are bailing out people who have not really adjusted their balance sheets to the new reality."

Yet American investors have been looking for additional liquidity efforts from the Fed.

Yves Smith at the Naked Capitalism blog notes: "Markets are right to be concerned about recession risks, but there is an awful lot of whining mixed in here. After all, most traders' year-end bonuses stand to benefit a lot from an even softer Fed policy stance. The markets were not satisfied with one dessert; they wanted two."

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