The Federal Reserve and five of the world’s largest central banks unveiled an enhanced US dollar liquidity arrangement on Sunday following recent banking problems at Credit Suisse (CS), Silicon Valley Bank (SIVB) and other financial institutions.
The Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank joined the Fed in rolling out an enhanced liquidity swap line against the US dollar.
The six central banks said in a joint announcement that they “are today announcing coordinated action to improve liquidity provision through the standing US dollar liquidity swap arrangements.”
Under the terms of the agreement, central banks will expand standing U.S. dollar liquidity swap arrangements by increasing the frequency of maturities from seven days to daily from the previous level of just once a week. The banks said day-to-day operations will begin Monday and continue until at least April 30.
Swap lines are a set of standing facilities created in 2013 to allow the six central banks to provide each other with enough currency from each participating country to provide liquidity to commercial banks in participating countries if needed.
By expanding operations of dollar swap lines, central banks attempt to ensure that commercial banks in participating countries have enough US currency to avoid insolvency.
The move comes just days after a lack of cash drove US-based Silicon Valley Bank (SIVB) and Signature Bank (SBNY) into bankruptcy and raised fears of similar crashes at First Republic Bank (FRC). ) and Credit Suisse (CS).
However, CS appears to have avoided bankruptcy by reaching a deal on Sunday to sell itself to fellow UBS (UBS) for $3.2 billion in stock.
The central banks said in Sunday’s joint statement that the new swap line agreement should “serve as an important backstop to ease stress in global funding markets, helping to mitigate the effects of such stress on the supply of credit to households and businesses”. ”