Chart of the day: the graph that shows why the central banks had to act

This chart demonstrating the liquidity crisis in European banking was produced by The Guardian’s Jill Treanor who specialises in the banking sector. She says:

If there was any doubt about the need for the intervention of the world’s central banks to try to avoid a new credit crunch, the chart above tells it all.

What is clear is that, with the U.S. dollar as the world’s major reserve currency, this move to lower the price on U.S. dollar liquidity swap arrangements is due to the world’s banks being short U.S. dollars. In the past few days, there have been rumours that a European bank was on the verge of failure due to a lack of U.S. dollar liquidity.

Also see Treanor’s piece: Central bank action: stunning move highlights sense of desperation. I have written a very similar piece that is due to appear in the New York Times today. The paragraph above is an excerpt of that piece.

While the markets rallied in a euphoric way, this move is actually a bad sign. It demonstrates things are much worse than we had realised. Olli Rehn has it right when he warned EU finance ministers they have 10 days to create deeper integration in the euro zone or Europe falls apart and we enter a very dark period.

Source: Eurozone crisis: the graph that shows why the central banks had to act – The Guardian