Faced with the risk of a rapid loss of confidence in the stability of the financial system, major central banks on Sunday took steps to boost cash flow around the world.
Source. Reuters
In coordination with the central banks of other countries, the US Federal Reserve offered daily currency swaps to ensure that banks in Canada, the UK, Japan, Switzerland and the eurozone will have the dollars they need to operate. Such emergency measures were last taken during the coronavirus crisis.
The authorities fear a crisis of confidence and a large-scale capital outflow from the financial system.
Liquidity will be provided through simplified dollar loans. In addition to the Fed, the European Central Bank (ECB), the Bank of Japan, the Bank of England, the Swiss Central Bank, and the Bank of Canada will participate in the program. To increase access to dollar liquidity, regulators will switch from weekly auctions of dollar liquidity to daily auctions.
"The network of swap lines between these central banks is a set of standing facilities available and is an important liquidity support to ease tensions in global funding markets, thereby helping to mitigate the effects of such stress on household and corporate lending," the ECB said in a similar statement.
The report suggests that the Fed will provide other central banks with special swap lines to help solve problems with dollar liquidity. This regime will be in effect until the end of April.
The announcement of emergency liquidity came immediately after the merger of the two largest Swiss banks, UBS and Credit Suisse, was announced. Experts fear that Credit Suisse's problems may be perceived by the market as a serious risk that will contribute to the deterioration of the situation in the global financial system.
The need for emergency measures was necessitated by a series of bank failures in the United States, where in mid-March three banks closed in one week – Silvergate Bank, Signature Bank and the bankruptcy of Silicon Valley Bank (SVB), which is among the top 20 US banks by assets and was a backbone bank for thousands of startups around the world. In Europe, the crisis centered around the Swiss Credit Suisse.
Backgrund. Read more about how the Swiss authorities forced the merger of its two largest banks to the detriment of investors in Mind's article "Historic Deal with a Twist: Swiss Bank UBS Buys Troubled Credit Suisse for Half Price. Why was it necessary and who risks losing their money?".