By Max Sato
(MaceNews) – Six major central banks said on early Monday Tokyo time that they are enhancing their joint efforts to provide ample funds to the financial markets under the scheme launched in 2009 in the aftermath of a global credit crunch, as investor concerns are growing over the health of financial institutions amid rising borrowing costs.
European and U.S. policymakers also welcomed the Swiss authorities’ action to spearhead the takeover by UBS of its troubled rival Swiss bank Credit Suisse while seeking to reassure that their regional and domestic financial systems are sound.
“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 a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements,” the central bank said in a joint statement on Sunday US time.
“To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily,” the banks said before Monday’s Asian market openings.
These daily operations will begin on Monday and will continue at least through the end of April, they said.
“The network of swap lines among these central banks is a set of available standing facilities and 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 said.
The swap agreements among the six central banks were first adopted in April 2009 after the collapse of Lehman Brothers the previous year triggered a global financial crisis. In October 2013, their temporary bilateral liquidity swap arrangements were converted to “standing arrangements.” The central banks also boosted their fund injections under the agreements in March 2020 to ease the negative impact of the global pandemic.
Prior to the central banks’ statement, UBS on Sunday announced the takeover of Credit Suisse for 3 billion Swiss francs ($3.2 billion).
“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the Swiss National Bank said in a statement.
Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to 100 billion Swiss francs and the SNB can grant Credit Suisse a liquidity assistance loan of up 100 billion Swiss francs backed by a federal default guarantee, the central bank said.
For its part, the Bank of England hailed the move as “the comprehensive set of actions set out by the Swiss authorities” to support financial stability.
“We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation,” the BOE said. “The UK banking system is well capitalised and funded, and remains safe and sound.”
European Central Bank President Christine Lagarde also welcomed “the swift action and the decisions taken by the Swiss authorities,” saying, “They are instrumental for restoring orderly market conditions and ensuring financial stability.”
“The euro area banking sector is resilient, with strong capital and liquidity positions,” Lagarde said in a statement. “In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.”
A similar message also came from US Treasury Secretary Janet Yellen and Federal Reserve Board Chair Jerome Powell.
“We welcome the announcements by the Swiss authorities today to support financial stability,” they said in a joint statement Sunday. “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient. We have been in close contact with our international counterparts to support their implementation.”
Contact this reporter: max@macenews.com
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