Capital Markets

Liquid Euros Can Flow to U.S. Banks

European and Asian Banks agree to a swap arrangement of up to $285 billion with the Fed.
David KatzApril 6, 2009

If they need it, more liquidity will be on the way to U.S. banks—and, presumably, U.S. companies—from their friends in Europe and Asia.

The Bank of England, the European Central Bank, the U.S. Federal Reserve, the Bank of Japan, and the Swiss National Bank announced the formation of swap arrangements that would enable them to supply foreign-currency liquidity via the Federal Reserve to U.S. financial institutions.  

“Should the need arise, euro, yen, sterling, and Swiss francs would be provided to the Federal Reserve via these additional swap agreements with the relevant central banks,” the ECB said in a release. “Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets.”

The governing council of the ECB will set up a temporary reciprocal currency arrangement (swap line) with the Fed. This agreement would provide the Fed with the capacity to offer liquidity of up to 80 billion euros (about $107 billion). The governing council approved the swap line until October 30, 2009.

If drawn upon, these arrangements would support operations by the Fed to provide liquidity in sterling in amounts in euros in amounts of up to €80 billion ($107 billion), of up to £30 billion in British sterling ($44 billion), in yen in amounts of up to ¥10 trillion ($99 billio), and in Swiss francs in amounts of up to CHF 40 billion ($35 billion). That would amount to a total of $285 billion at todays currency rates.