WASHINGTON – The Federal Reserve and other major global central banks said Sunday they will work to keep dollars readily available throughout the global financial system as bankruptcies in America and banking problems in Europe create tensions.
The Fed, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank have announced they will offer more often so-called swap operations – which help foreign banks gain weekly access to US dollar funding – until April. Instead of weekly offers, they will be daily for now.
The move is meant to try to head off choppy conditions in the markets as jittery investors react to the outbursts of Silicon Valley Bank and Signature Bank in the United States and agreed takeover Credit Suisse from UBS in Europe. Turbulence in the financial sector can easily worsen if investors are scrambling to move their money — which often happens because of a lack of dollar funding in times of stress. A swap line can help relieve these pressures.
But the fact that central banks are strengthening swap lines underscores how severe the impact of bank problems has become: Central banks typically withdraw such programs amid acute problems, such as the 2008 financial crisis or the 2020 market crash at the start of the coronavirus pandemic.
The move was a “coordinated action to improve liquidity provision,” according to a statement from the central banks.
The move comes ahead of a big week for the Fed. The US Federal Reserve is due to meet and announce its latest interest rate decision on Wednesday.
Just a few weeks ago, it seemed possible that the Fed could make a big half-point move this meeting as it sought to combat surprisingly stubborn inflation in an economy that has proven remarkably resilient.
But with turmoil running across the global banking system, investors now believe a big move is unlikely: betting on a smaller move of a quarter of a percentage point or no move at all as officials wait to digest how the financial system will deal with the latest developments. Additionally, turmoil in banking may lead to less lending, which in itself could help slow the economy.
This is a developing story. Watch for updates.