The European Central Bank (ECB) and the United States Federal Reserve (Fed) have announced this Sunday a coordinated action together with the Bank of Canada, the Bank of England, the Bank of Japan, and the Swiss National Bank to provide liquidity through agreements of currency exchange lines in dollars.
The objective is to “improve the effectiveness of the ‘swap’ lines in providing financing in dollars, the central banks that already offer these operations have decided to increase the frequency of operations with a maturity of seven days from weekly to daily,” says a statement issued by the European Central Bank.
Daily refinancing operations in dollars maturing in seven days will begin on March 20 and will continue until at least the end of April.
Swaps are financial exchange agreements in which one of the parties agrees to pay with a certain periodicity a series of monetary flows in exchange for receiving another series of flows from the other party.
It is the usual operation of financial institutions to balance the operations of their clients between different banks. They work to the extent that they trust that these operations will be able to be settled by the counterparty without problems.
The operation announced by the central banks seeks to guarantee normal operation in the financial system without, after the UBS takeover of Credit Suisse, there could be episodes of mistrust with respect to other banks.
This same Sunday, the ECB praised the rapid intervention of the Swiss authorities in favor of financial stability by endorsing the takeover of Credit Suisse by its competitor UBS.
The action “has been decisive in restoring order in market conditions and guaranteeing financial stability,” ECB President Christine Lagarde said in a statement after learning of the Swiss authorities’ decision.
