Fed, ECB and four other central banks take ‘coordinated action’ to ensure dollar liquidity

The Federal Reserve and five of the world’s other top central banks unveiled an enhanced U.S. dollar-liquidity arrangement Sunday in the wake of recent banking woes at Credit Suisse (CS), Silicon Valley Bank (SIVB) and other financial institutions.

The Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank joined the Fed in rolling out an enhanced liquidity swap line for U.S. dollars.

The six central banks said in a joint announcement that they “are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar-liquidity swap-line arrangements.”

Under terms of the agreement, the central banks will expand standing U.S. dollar-liquidity swap-line arrangements by increasing the frequency of seven-day maturity operations to daily from the previous level of just once per week. The banks said daily operations will begin on Monday and continue through at least April 30.

The swap lines are a set of standing facilities created in 2013 to allow the six central banks to provide each other with enough of each participating nation’s currency to provide liquidity to participating countries’ commercial banks when necessary.

By expanding the dollar swap lines’ operations, the central banks are attempting to ensure that commercial banks in participating countries have enough liquidity to prevent insolvency.

The move comes just days after a lack of such liquidity drove U.S.-based Silicon Valley Bank (SIVB) and Signature Bank (SBNY) out of business and raised fears of similar crashes at First Republic Bank (FRC) and Credit Suisse (CS).

However, CS appears to have avoided going under by reaching an agreement Sunday to sell itself to fellow Swiss bank UBS (UBS) for $3.25B in stock.

The central banks said in Sunday’s joint statement that the new swap-line arrangement should “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.”