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Central banks intervene with dollar liquidity measures
Proactive Investors - Six major central banks, including the Federal Reserve, are implementing new measures to enhance global access to dollar liquidity amidst the ongoing turmoil in the banking sector.
Starting on Monday, they will shift from weekly to daily dollar auctions to alleviate strains in global funding markets. This initiative, involving the Fed, the European Central Bank, the Bank of England, the Swiss National Bank, the Bank of Canada and the Bank of Japan, will continue at least until the end of next month.
The approach was last used during the 2020 Covid crisis and follows the news of UBS and Credit Suisse's merger after a weekend of intense negotiations.
European officials are worried that the losses imposed on Credit Suisse 's shareholders and bondholders could exacerbate stress in bank funding markets this week, newspapers, including the Financial Times, have reported.
The Fed's swap line network, established in 2007, has served as a crucial funding safety net for global banks during periods of severe market stress.
Non-US lenders can use it to access dollars in exchange for their domestic currencies by pledging collateral at their respective central banks.
The central banks said that this network "serves as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses".
The Bank of England will announce the details of each day's operation at 8.15 am, with funds offered at a rate equivalent to overnight US interest rates plus 25 basis points.
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