Central banks announce dollar liquidity measures to ease banking crisis

The Federal Reserve and five other leading central banks have taken new steps to improve global access to dollar liquidity as financial markets reel from the turmoil hitting the banking sector.

In a joint statement on Sunday, central banks said they would switch from weekly to daily bids for dollars in an effort to “reduce pressures on global financial markets” starting tomorrow.

Officials said daily exchange lines between the central bank and the European Central Bank, the Bank of England, the Swiss National Bank, the Bank of Canada and the Bank of Japan will run at least until the end of April.

The announcement of daily dollar bids across time zones — a policy last implemented during the 2020 Covid shock — came hours after the SNB announced that Switzerland’s two biggest banks, UBS and Credit Suisse, would merge after a frantic weekend of talks.

European officials are concerned that large losses imposed on Credit Suisse’s shareholders and bondholders holding its alternative tier one, or AT1, debt could increase pressure on banking financial markets this week.

The central bank’s swap line network, first set up in 2007, has provided critical financial support to banks worldwide during times of severe market stress. Lenders outside the US can use swap lines to access dollars in exchange for their domestic currencies by placing mortgages with their respective central banks.

On Sunday evening the ECB’s governing body approved a move to a daily swap rate with the central bank.

“The network of swap lines between these central banks is a set of available stable facilities and serves as an important liquidity backstop to ease stresses in global financial markets, thereby helping to mitigate the effects of such strains on lending to households and businesses,” the central banks said. said.

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The BoE said it will announce details of each day’s activity at 8.15am London time. Proceedings will begin at 8.15am, bidding will close at 8.45am and results will be announced at or shortly after 10am. Funds are disbursed at a rate equal to US overnight interest rates plus 25 basis points.

The Fed also has a facility that allows central banks and international monetary authorities to enter into repurchase agreements with the Fed and trade US Treasuries for dollars.

The so-called “FIMA” repo facility was originally set up as part of the central bank’s emergency measures to contain the fallout from the Covid crisis and was made permanent in 2021.

Additional reporting by Delphine Strauss in London

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