The European Central Bank, U.S. Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland are all taking part in the operation, which is designed to "enhance their capacity to provide liquidity support to the global financial system."
The European Central Bank said in a statement the central banks were making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant by establishing a temporary network of reciprocal swap lines.
The ECB said the central banks have agreed to reduce the cost of temporary dollar loans to banks -- called liquidity swaps -- by a half percentage point. The new, lower rate will be applied to all central bank operations starting on Monday.
Stocks surged following the news. Germany's DAX was trading 4 percent higher as were Dow futures in New York.
The financial system has been showing signs of entering another credit crunch like the one in 2008 as Europe's debt crisis has shown alarming signs of spreading. The possibility that one or more European governments might default on debt have raised fears of a shock to the global financial system that would lead to severe losses for banks and a contraction in lending.
Fears of more financial turmoil in Europe have already left some European banks dependent on central bank loans to fund their daily operations. Other banks are wary of lending to them for fear of not getting paid back.
Such constraints on interbank lending can hurt the wider economy by making less money available to lend to businesses.