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Fed Extends Dollar Swap Lines With Central Banks

Fed Extends Swap Lines With European, Canadian Central Banks
A woman walks past the Marriner S. Eccles Federal Reserve building in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

The Federal Reserve said it will extend temporary dollar-swap agreements with four major central banks through Feb. 1, 2014.

The arrangements include the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank, the Fed said in a statement today in Washington. Previously, the arrangements had been authorized through Feb. 1, 2013.

The central banks are also extending through Feb. 1, 2014, the network of temporary bilateral liquidity swap arrangements, the Fed and the European Central Bank said in separate press releases.

The bilateral swaps “enable the euro-system to continue to provide euro to those central banks when required and to provide to its counterparties,” as well as yen, pounds, Swiss francs and Canadian dollars, in addition to the existing liquidity-providing operations in U.S. dollars, the Frankfurt-based ECB said in a separate statement.

The Bank of Japan will consider an extension of both arrangements at its next monetary policy meeting, the Fed said.

The Fed first opened swap lines in December 2007 to provide the global financial system with dollar liquidity as the subprime mortgage crisis began to create doubts about the quality of assets on bank balance sheets around the world. The swaps were closed in February 2010 and re-opened in May of that year as a squeeze in dollar funding re-emerged with the European financial crisis.

Outstanding swaps on the Fed’s balance sheet declined to $12.2 billion Dec. 5 from $31 billion at the start of August. Foreign banks hold billions in dollar assets without the broad deposit-based funding structure of U.S. banks. The Fed swaps provide a backup to market sources of dollar funding.

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