The European Central Bank (ECB) and the Federal Reserve of the United States (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 dollar currency swap line agreements.
The objective is to "improve the effectiveness of swap lines to provide 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 ECB Daily seven-day dollar refinancing operations will begin on March 20 and continue until at least the end of April.
Swaps are financial exchange agreements in which one of the parties undertakes to pay a certain periodicity of 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 square the operations of their customers between different banks. They work to the extent that they trust that those operations can be settled by the counterparty without problems.
The operation announced by the central banks seeks to guarantee normal operation in the financial system without, following the absorption operation of UBS on Credit Suisse, episodes of mistrust with respect to other banks.
This same Sunday, the ECB praised the swift intervention of the Swiss authorities in favor of financial stability by endorsing the absorption of Credit Suisse by its competitor UBS. The action "has been decisive in restoring order in market conditions and guaranteeing financial stability", indicated in a statement the president of the ECB, Christine Lagarde, after the decision of the authorities was known. He also added that the euro zone "is resilient and has enough capital and liquidity", to insist that "our political instruments are equipped to guarantee the liquidity of the euro zone financial system"
The announcement came shortly after the deal was made public for UBS to acquire struggling Credit Suisse, and with it, try to avoid a banking collapse in the global financial system. It is what has led to frantic negotiations over the weekend in Switzerland, followed closely by the monetary authorities of all countries, including the ECB and the Federal Reserve.
