The most powerful central banks coordinate to provide liquidity and reassure the markets

The American Federal Reserve, the European Central Bank and the English, Japanese national banks and Swiss announced on Sunday evening a coordinated action to provide liquidity, with the aim of reassuring the markets in the midst of a crisis of confidence in the banking system.

The exceptional measure comes just after the takeover of Credit Suisse by UBS, an operation orchestrated by the Federal Council to restore confidence in the financial system.

Read also: Credit Suisse takeover by UBS creates a new banking giant

The institutions have decided to strengthen the “swap lines”, a device which facilitates the access of foreign central banks to dollars. The central banks will thus increase the frequency of operations in dollars: “Until now weekly, these operations will now be daily and will begin on Monday March 20, 2023. They will continue at this rate at least until the end of April”, indicates the press release.

The “liquidity safety net”

The network of swap lines serves as a “liquidity safety net to ease tensions in international funding markets and thus help to mitigate the effects of these tensions on the supply of loans to households and businesses”, the institutions recall. .

Markets, in turmoil since the flash bankruptcy of Silicon Valley Bank, are worried about running out of cash as interest rates have risen to fight inflation.

In 2020 the Fed had put in place and extended similar agreements in the face of the advance of the Covid-19 pandemic, and these had already been extended. The agreement was signed by the Bank of England, the Bank of Canada, the European Central Bank (ECB), the Bank of Japan, the Swiss National Bank (SNB) and the Federal Reserve of the United States.

Read also: Liquidity at the heart of market upheavals

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