In an effort to allay concerns shaking the global banking sector, the US Federal Reserve and other significant central banks announced on Sunday a concerted effort to increase banks’ access to cash.
The Federal Reserve and the central banks of Canada, the United Kingdom, Japan, the European Union, and Switzerland will commence the special push on Monday.
The statement was made a few hours after Switzerland arranged for UBS to acquire its ailing rival Credit Suisse in Switzerland.
The central banks will increase so-called swap line activities, which increase the availability to dollars for central banks outside the US.
The central banks now offering US currency operations have decided to increase the frequency of 7-day maturity operations from weekly to daily in order to increase the effectiveness of the swap lines in delivering US dollar funding.
The statement further stated, ‘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 demise of Silicon Valley Bank and worries about a liquidity crunch as interest rates are increased to combat inflation have roiled the markets.
A similar swap line facility was offered and later expanded by the Fed in 2020, when the Covid-19 outbreak led to a global cash shortage.
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