Skip to comments.Central banks to restore currency swaps
Posted on 05/09/2010 9:37:10 PM PDT by bruinbirdman
Central banks around the world on Sunday night announced they would restore currency swap agreements that were introduced during the financial crisis, in an attempt to ease the strain on banks caused by the European sovereign debt crisis.
The move by the Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, and the Swiss National Bank was part of an audacious coordinated package by global authorities to combat escalating financial market tensions, including an emergency funding facility worth as much as 720bn in loan guarantees and credits.
The Bank of Japan was meeting on Monday to approve similar swap agreements.
There have been growing fears that many banks, particularly in Europe, are facing renewed distress only shortly after they recovered from the recession.
While the global economy has bounced back, many policy makers around the world are concerned that the European debt crisis could threaten the turnaround.
The currency swap facilities approved on Sunday night are intended to make it easier for European banks under pressure to access funding in dollars.
These facilities are designed to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and financial centres, the Fed said in a release. Central banks will continue to work together closely as needed to address pressures in funding markets.
The Fed first introduced foreign exchange swap lines in December 2007. They were ramped up significantly towards the end of 2008, at the height of the financial crisis, when their size increased from under $100bn to about $600bn. Throughout 2009, the size of the swap lines decreased steadily as credit markets improved around the world, and by the beginning of this year, the facilities had been wound down altogether. But in recent days, there had been mounting speculation that the escalating crisis in Greece and worries that it might spread to Portugal and Spain would cause central banks to revive it.
The decision to open up currency swap lines with foreign central banks rests with the Federal Open Market Committee, which approved the move in an emergency session. In a note on Friday, Michael Feroli, an economist at JPMorgan, noted that a decision to reopen swap lines could face some congressional scrutiny for being a foreign bank bailout. He also noted that the move could increase the Feds $2,200bn-plus balance sheet at a time when the US central bank is aiming to start bringing it back to its pre-financial crisis level of below $1,000bn.
The US Treasury declined to comment on the announcement by the Fed on Sunday.
This is not good.
Note that the Bank of China is not part of this coordinated action.
It is a foreign bank bailout! JAIL these bastards!
There has never been transparency in EUrotopian finances. In 2007 and 2008, the EU was touted as the pillar of stability, but their numbers never added up.
I remember when the currency swaps were first instituted during the crisis and the discount windows opened. The EU's numbers were something like 5 times the size of USA. It was indicative of their toxic exposure. The German banks were the first to be bailed out because they were state owned.
But, EUrotopia is an odd place where it seems reporting bad economic news is a violation of their secrets act or their criminal prohibition of xenophobia.
Looks like some big insiders have finally decided EU is a bad investment.
EU has decided it can't hide its backroom ECB deals any longer and must start printing money.
This is worse than QE, it is indicative of the real economic strength of the socialist consolidation experiment EUrotopia.
NOPE! Ben says it can be done.
Audit the DAMN Fed!
The only audit we will ever have is if we physically walk through the smoldering ruins of the Federal Reserve Banks.
Rahm said OKAY just as long as the usual cut was wire-transferred offshore to the usual notorious money laundering havens: Lebanon, Liechtenstein, Russia, India, Israel, Panama, the Bahamas, the Cayman Islands, the Cook Islands, Dominica, the Marshall Islands, Nauru, Niue, Panama, the Philippines, St. Kitts and the Grenadines, Cyprus, Gibraltar, Monaco, Antigua, Tortola, BVI.
So Obama quickly obliged and asked Congress to fold the $108 billion into a war-spending bill, originally crafted to send money to US troops.
Sen Jim DeMint (R-SC) offered an amendment to take it out of the war bill b/c he knew this was an "international version of the domestic TARP" (containing the same billion dollar kickbacks).
But the Democrat Senate voted to keep the IMF bailout in the war-spending bill (thus guaranteeing Democrats that their percentage was intact).
Not only Gangsters but One World Government Gangsters. Linking all the world currencies together is nice step to a 'One World' goobermint.
It also literally means there CAN'T ever be a war between countries again, say ... Japan and Botswana, or ... the US and the USSR, oops I mean 'Russia' :-)
If one country goes down, then we ALL go down. Nice, huh.
It seems to me that the purpose of these currency swaps is roughly-——
Portugal lends Spain 30 billion at interest rate A
Spain in turn lends Portugal 30 billion at interest rate B
Both countries come out looking more solvent. One country makes a bit of money because it is able to charge a higher interest rate for the 30 billion swapped,loaned whatever you want to call it
Not all currency swaps are like this but this is what is going on today to paper over European problems
“So Obama quickly obliged and asked Congress to fold the $108 billion into a war-spending bill, originally crafted to send money to US troops. “
That explains the new government “ shakedown” of the military budget.
"Paper over" Eh, eh. Pun intended, huh?
Central bank swaps provide liquidity in foreign currency while eliminating private market valuation.