ECB, Fed and other central banks in coordinated move to ease liquidity crisis
The US Federal Reserve and European Central Bank along with four more of the world’s major central banks today announced a coordinated move to bolster the liquidity of the global financial system.
The Fed and ECB – along with the Bank of England, the Bank of Japan, the Swiss National Bank and the Bank of Canada – said that they had agreed to lower by 50 basis points the pricing on dollar liquidity swaps.
The move is designed to make it easier for banks around the world to trade in US dollars.
Global stock markets rose sharply after the move was announced this lunchtime.
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” a joint statement said.
The new pricing will come into effect from December 5 and extend until February 1, 2013.
The ECB said they are making it cheaper for banks to get US dollar liquidity when they need it, and are also taking steps to ensure banks can get ready money in any currency if market conditions warrant.
The governing council of the ECB said that it was to establish a temporary network of reciprocal swap lines in cooperation with other central banks.
"This action will enable the Eurosystem to provide euro to those central banks when required, as well as enabling the Eurosystem to provide liquidity operations, should they be needed, in Japanese yen, sterling, Swiss francs and Canadian dollars (in addition to the existing operations in US dollars)," an ECB statement said.
The financial system has been showing signs of entering another credit crunch as Europe’s debt crisis has shown alarming signs of spreading.
