Federal Reserve, Other Central Banks Announce Joint Liquidity Measures

The Marriner S. Eccles Federal Reserve Board building in Washington on March 16, 2022. (Saul Loeb/AFP via Getty Images)

The U.S. Federal Reserve announced on Sunday that it is collaborating with some of the world’s largest central banks to enhance liquidity provision by strengthening the standing of U.S. dollar liquidity swap line arrangements.

The central banks will increase the frequency of seven-day maturity operations from weekly to daily to improve the effectiveness of the swap lines in providing U.S. dollar funding, the Fed said in a statement.

Apart from the Fed, other central banks participating in the coordinated action include the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

“The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” it stated.

Operations would commence on Monday and continue at least through the end of April to support the smooth functioning of U.S. dollar funding markets, according to the European Central Bank.

The move came on the heels of a deal brokered by Swiss authorities to have UBS Group buy rival Swiss bank Credit Suisse Group to prevent its disorderly collapse.

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The deal followed efforts in Europe and the United States to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank.

Fed Reveals Banks Borrowing Billions in Loans

The Fed published data on March 16 revealing that banks had borrowed a combined total of $164.9 billion from the central bank in recent weeks to maintain their liquidity.

According to data from the Fed, banks borrowed $152.85 billion from the central bank in the week ending March 15 using the Fed’s traditional discount window—known as discount window lending—which provides loans for periods of up to 90 days.

That is up from $4.58 billion in loans the previous week.

Elsewhere, about $11.94 billion was borrowed through the newly created Bank Term Funding Program (BTFP), established to support American businesses and households by safeguarding institutions impacted by the collapse of SVB.

The BTFP said it provides loans for up to one year to banks, savings associations, credit unions, and other eligible depository institutions, in return for them pledging “collateral” such as U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets.

Bloomberg noted that the previous all-time high borrowed from the Fed by banks was $111 billion during the 2008 financial crisis.

In keeping with tradition, the Federal Reserve did not identify the banks that took out loans in its latest statistics.

Katabella Roberts and Reuters contributed to this report.