Fed in $287bn currency swap with central banks

Four central banks, including the European Central Bank (ECB) and the Bank of England (BoE), have agreed further reciprocal foreign currency swap arrangements with the Federal Reserve to provide more US dollar funds to firms in participating nations as needed over the next six months.

In an extension of swap arrangements first introduced in September 2008, the Bank of Japan and the Swiss National Bank will join the BoE and ECB in collectively receiving up to $287 billion in US dollar liquidity from the Fed in exchange for sums of their national currencies.

The swap will allow the US central bank to provide up to £30 billion, €80 billion, ¥10 trillion, and Sfr40 billion to US financial institutions if necessary.

UK banks, dealers and other financial entities will be able to take advantage of the funds through an auction process, with eligible collateral consisting of securities routinely eligible in the BoE's short-term repo Open Market Operations together with conventional US Treasuries. Other participating central banks did not disclose eligibility requirements in their respective announcements.

The foreign currency liquidity swap lines have been authorised through to October 30, 2009 after the $180 billion expansion of the Fed's swap lines on September 18, 2008 to provide dollar funding for both short-term and overnight liquidity operations by the other central banks following the collapse of Lehman Brothers and the federal rescue of insurer American International Group. Those swap provisions lapsed on January 30, 2009.

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