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Full Text: FRB Statement on Coordinated Central Bank Action on Currency Swaps

Release Date: November 30, 2011

For release at 8:00 a.m. EST

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. These swap lines are authorized through February 1, 2013.

Federal Reserve Actions

The Federal Open Market Committee has authorized an extension of the existing temporary U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank through February 1, 2013. The rate on these swap arrangements has been reduced from the U.S. dollar OIS rate plus 100 basis points to the OIS rate plus 50 basis points. In addition, as a contingency measure, the Federal Open Market Committee has agreed to establish similar temporary swap arrangements with these five central banks to provide liquidity in any of their currencies if necessary. Further details on the revised arrangements will be available shortly.

U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.

Information on Related Actions Being Taken by Other Central Banks

Information on the actions to be taken by other central banks is available on the following websites:

Bank of Canada

Bank of England

Bank of Japan (PDF)

European Central Bank

Swiss National Bank (PDF)

Frequently Asked Questions: U.S. Dollar and Foreign Currency Liquidity Swaps

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

2 Comments

  1. EDP says:

        Question: Would you say that the short term funding pressures had gotten so bad that the Fed and other CB’s had to stem an existing crisis with a bazooka increase in swap lines, the key metric being an unlimited amount and not the 50bps rate reduction? In addition it would seem this addresses liquidity but not solvency and that the EU creditor centric fiscally austere solution for Europe still poses a huge deflationary risks to their economies?
         Congratulations: You thought something was brewing in Europe on Sunday night and you were dead right in your analysis.

  2. EDP says:

        Question: Would you say that the short term funding pressures had gotten so bad that the Fed and other CB’s had to stem an existing crisis with a bazooka increase in swap lines, the key metric being an unlimited amount and not the 50bps rate reduction? In addition it would seem this addresses liquidity but not solvency and that the EU creditor centric fiscally austere solution for Europe still poses a huge deflationary risks to their economies?
         Congratulations: You thought something was brewing in Europe on Sunday night and you were dead right in your analysis.

  3. Anonymous says:

    My question is which bank was the trigger for this action. I suspect that it is still a solvency problem being described as a liquidity problem. 

  4. Anonymous says:

    My question is which bank was the trigger for this action. I suspect that it is still a solvency problem being described as a liquidity problem.