Amid the recent banking turmoil, a group of central banks have announced joint measures to ensure the steady flow of dollars across the global financial system.
After the high-profile collapse of two US commercial banks - Silicon Valley Bank and Signature Bank - and the announced acquisition of Swiss-based global investment bank Credit Suisse by UBS, a new frequency for the US dollar liquidity "swap line" arrangement has been announced as of Monday, set to remain in place "at least through the end of April."
In line with the move, the so-called swap lines - the 7-day maturity operations which aid foreign banks in receiving access to US dollar financing - will be held daily, instead of on a weekly basis.
According to a joint statement by the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan, and the Swiss National Bank, the move is a "coordinated action to enhance the provision of liquidity.”
"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," said the statement.
The liquidity "swap line" arrangement announced on March 19 was previously resorted to during the 2008 financial meltdown and the COVID-19 pandemic.
The fact that six of the world's biggest central banks have taken such coordinated action could be seen as a sign of the seriousness of the current troubles engulfing the financial system. The failure of Silicon Valley Bank (SVB) on March 10, followed by the Signature and Silvergate bank failures, along with the crisis engulfing Credit Suisse in Europe, prompted other banking sector stocks to tank. The developments came against the backdrop of the US Federal Reserve's policy of rampant interest rate hikes in a bid to reign in inflation.
Its worth noting that the move comes ahead of a scheduled meeting by the Fed on March 21, when it is expected to announce its latest interest rate decision. There had been reports earlier suggesting the US central bank was mulling making a large half-point move, but analysts now speculate that it might be reassessed.
The Federal Reserve is likely to approve a quarter-percentage-point interest rate hike, according to Wall Street experts.