WASHINGTON — The Federal Reserve and other major global central banks announced Sunday that they will work to make sure dollars remain readily available throughout the global financial system, as bank explosions in the United States and banking problems in Europe add to tension.
The Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank announced that most frequent offer so-called swap operations, which help foreign banks gain access to funding in US dollars for a week, until April. Instead of being weekly, offerings will now be daily.
The aim of the move is to try to avoid tumultuous conditions in the markets as nervous investors react to the explosions of Silicon Valley Bank and Signature Bank in the United States and the concerted acquisition of Credit Suisse by UBS in Europe. The turmoil in the financial sector can easily worsen if investors struggle to move their money, something that often happens due to a shortage of dollar funds at times of stress. Exchange lines can help release those pressures.
Still, the fact that central banks are improving swap lines underscores just how dire the consequences of banking problems have become: central banks typically withdraw such programs in the midst of acute problems, such as the 2008 financial crisis or the 2020 market crash at the start of the coronavirus pandemic.
The measure was “a coordinated action to improve the provision of liquidity,” according to the statement from the central banks.
The move comes before a big week for the Fed. The US central bank is scheduled to meet and announce its latest interest rate decision on Wednesday.
Until a few weeks ago, it seemed possible that the Fed could make a big half-point move at this meeting, as it tried to combat surprisingly stubborn inflation in an economy that had proven remarkably resilient.
But with turmoil sweeping the global banking system, investors now think a big move is unlikely: They are betting on a move smaller than a quarter point, or no move at all, while officials wait to digest how the system Finance is handling the latest developments. Furthermore, the turmoil in banking may lead to fewer lending, which in itself could help slow the economy.
This is a developing story. Please check back for updates.