Fed and global central banks take steps to increase dollar funding

(Bloomberg) – The Federal Reserve and five other central banks on Sunday announced coordinated action to increase liquidity in U.S. dollar swap agreements, the latest effort by policymakers to ease growing strains in the global financial system.

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Central banks involved in dollar swaps “will increase the frequency of 7-day maturities from weekly to daily,” the Fed said in a statement coordinated with the Bank of Canada, Bank of England, Bank of Japan, the European Central Bank. Bank and the Swiss National Bank.

The US central bank has generally provided access to such arrangements at times when there is a shortage of dollars. This may arise because banks outside the United States typically have greenback-denominated bonds and, in times of financial difficulty, have less access to dollar funding.

The move comes amid heightened tension that began with the collapse of three US lenders a week ago. Earlier on Sunday, UBS Group AG agreed to buy Credit Suisse Group AG in a government-brokered deal aimed at containing a crisis of confidence that threatened to spill over into global financial markets.

The increase in swap lines “will improve liquidity provision”, the central banks said, describing the agreements as “an important safety net to ease stress in global funding markets” and mitigate the impact on the economy. supply of loans to households and businesses.

The Fed said daily operations will begin Monday, March 20 and continue through at least the end of April.

In a joint statement earlier on Sunday, the Fed and the US Treasury joined other central banks in hailing the rescue of Credit Suisse. Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell stressed that US banks’ capital and liquidity are strong.

Banks rushed to borrow money from the Fed last week as they sought to bolster liquidity amid concerns over a deposit flight. Lenders have borrowed some $165 billion in total under two guarantee facilities. Overall, emergency lending reversed the Fed’s months-long campaign to shrink its balance sheet.

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