Azad Zangana, European Economist at Schroders comments on today’s announcement from Central Banks on US Dollar swap-lines:
“Earlier today, the European Central Bank in conjunction with the Federal Reserve, the Bank of England, the Swiss National Bank, and the Bank of Japan announced that they would be providing additional US Dollar denominated liquidity to European Banks.
“Fears had been mounting in across the world that European banks may struggle to continue to access money markets through the rest of the year. Despite having unlimited liquidity available to them from the European Central Banks, international investors had become concerned that European banks were actually struggling in US dollar markets. The ECB had previously opened Euro-US dollar swap lines, but this was seen as insufficient by markets.
“The new coordinated action means European banks will now be able to borrow in US dollars for 3-month periods, and will have 4 opportunities – guaranteeing liquidity until August 2012. The new loans are expected to offer only a small discount relative to the current market cost of borrowing, but they will provide investors re-assurance that the ECB is committed to providing liquidity, along with the other central banks involved..”
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