WASHINGTON, Dec. 12 (Xinhua) -- The Federal Reserve announced Wednesday that it will work with other central banks to deal with the credit crunch in the global market.

    It has reached an agreement with the Bank of Canada, the Bank of England, the European Central Bank, and the Swiss National Bank to "address elevated pressures in short-term funding markets," the U.S. central bank said in a statement.

    Actions taken by the Fed include the establishment of a temporary auction facility to make funds available to banks and the establishment of foreign exchange swap lines with the European Central Bank and the Swiss Central Bank.

    "All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program will be eligible" to participate in the auctions for funds, the Fed said.

    According to the statement, the first auction of 20 billion dollars was scheduled for next Monday, followed by another auction of 20 billion dollars on Dec. 20. The third and fourth auctions will be on Jan. 14 and 28.

    The Fed may conduct additional auctions in subsequent months, depending in part on evolving market conditions, according to the statement.

    The new auction process should "help promote the efficient dissemination of liquidity" when other lines of credit were under stress, the Fed said.

    This Fed action came a day after the Fed cut a key interest rate by a quarter percentage point to 4.25 percent, the third consecutive rate reduction in the past three months.

    The big worry is that the credit crunch stemming from the tightening of bank lending standards in the wake of multibillion dollar losses from a rising tide of defaults on mortgage loans could make consumers and businesses cut back spending and investing sharply, dragging the economy into recession.