Central Bankers United!30 November, 2011, 21:14. Posted by Zarathustra
Who would have guessed…
Amid the increasingly tight US dollar liquidity as evidenced by widening of EURUSD and USDJPY basis swap in the recent weeks, here is what we get. Major central banks are cutting dollar swap rates by 50 basis points for the existing facilities. On top of that, banks can now borrow Japanese yen, Euro, sterling, Swiss Francs and Canadian dollars on top of the existing US dollar facilities.
From the FED:
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.
These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. These swap lines are authorized through February 1, 2013.
I am not sure if we should be terribly happy about something like this. Coordinated intervention on such a scale suggests that the global banking system is in deep trouble.