swap lines

Claire Jones

The Federal Reserve attracts scorn like no other central bank on the planet.

There’s much to lament in EU politicians’ calls to buy their debt in massive quantities. But none of them have done a Rick Perry and threatened physical violence on Mario Draghi. And it’s difficult to image that a book calling time on the Bank of England would make the bestsellers’ lists, despite the Bank’s recent slump in popularity.

And so, following the publication of yet another Bloomberg article lambasting the Fed for its secrecy (this time over the dollar swap lines with foreign central banks), it is understandable that the central bank has attempted to placate some of its more vitriolic critics by mentioning that the lines make a profit.

But it’s a strategy that could easily backfire. Read more

Claire Jones

It appears that last week’s coordinated action has had the desired effect.

Demand for the European Central Bank’s dollars has surged. There were also takers elsewhere, with the Swiss National Bank’s swap line tapped for the first time since mid-August.  Read more

From FT Alphaville

Here’s a timely working paper from the BIS.

It’s a 91-page review of liquidity provisions during the financial crisis, including the multitude of currency swap lines initiated by the globe’s central banks. It’s timely because last month the Federal Reserve restarted its swap lines to help ease strains in short-term US dollar funding markets in Europe.

In late 2008, right before the collapse of Lehman Brothers, the Fed also upped its dollar lending to other central banks to help boost liquidity. So far, the Fed’s latest facility has extended a little over $10bn. In 2008, it provided a whopping $554bn in USD funding. And here’s where things get interesting.

From the paper:

Much of the sudden demand for dollar funding in international markets immediately after Lehmans’ failure appears to have resulted from the drawing of dollar funds by commercial banks in the USA from their related foreign offices.

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