The Federal Reserve and five other leading central banks have taken new measures to improve global access to dollar liquidity as financial markets reel from the turmoil in the banking sector.
In a joint statement on Sunday, central banks said they would switch from weekly to daily dollar auctions starting tomorrow to “reduce tensions in global funding markets.”
Daily swap lines between the Fed and the European Central Bank, Bank of England, Swiss National Bank, Bank of Canada and Bank of Japan would run until at least the end of April, officials said.
The announcement of daily dollar auctions 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, will reopen after a hectic weekend of negotiations would merge.
European officials are concerned that the steep losses imposed on Credit Suisse shareholders and bondholders holding its Tier 1 alternative bonds – or AT1s – could add to stress in bank funding markets this week.
The Fed’s swap line network, first established in 2007, has proven to be an important source of funding protection for global banks during periods of acute market stress. Non-US lenders can use the swap lines to access dollars in exchange for their local currency by posting collateral with their respective central bank.
The Governing Council held a phone call Sunday evening to approve the move to a daily swap line with the Fed.
“The network of swap lines between these central banks is a set of available standing facilities and serves as a key liquidity backstop to ease tensions in global funding markets, thereby helping to mitigate the impact of such tensions on household and corporate credit ‘ the central banks said.
The BoE said it would provide details of daily operations at 8.15am London time. The operation would be at 8.15am with a cut off time of 8.45am and the results being announced at 10am or shortly thereafter. The funds would be offered at a rate equal to US federal funds rates plus 25 basis points.
The Fed has also set up a facility that allows central banks and international monetary authorities to enter into repurchase agreements with the central bank and trade US Treasuries for dollars.
The so-called “FIMA” repo facility was first established as part of the Fed’s emergency measures to contain the consequences of the Covid crisis and was established permanently in 2021.
Additional reporting by Delphine Strauss in London