Global Central Banks announce coordinated measures to address liquidity condition.

For release at 3:00 a.m. EDT

Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.

Federal Reserve Actions

The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks.

The FOMC has authorized increases in the existing swap lines with the ECB and the Swiss National Bank. These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $110 billion by the ECB, an increase of $55 billion, and up to $27 billion by the Swiss National Bank, an increase of $15 billion.

In addition, new swap facilities have been authorized with the Bank of Japan, the Bank of England, and the Bank of Canada. These facilities will support the provision of U.S. dollar liquidity in amounts of up to $60 billion by the Bank of Japan, $40 billion by the Bank of England, and $10 billion by the Bank of Canada.

All of these reciprocal currency arrangements have been authorized through January 30, 2009.

Bank of Canada

Bank of Canada Actions

Bank of Canada Action

The Bank of Canada and the Federal Reserve have agreed on a US$10 billion swap facility (reciprocal currency arrangement) to be accessed, should the need arise, to provide U.S.-dollar liquidity in Canada. If drawn on by the Bank of Canada, the swap would provide liquidity facilities for use by financial institutions in Canada that are similar in nature to those being announced today by the other central banks. This swap facility expires on 30 January 2009.

This agreement provides the Bank of Canada with additional flexibility to address rapidly evolving developments in financial markets. The Bank judges that it is not necessary for it to draw on this swap facility at this time, but that it is prudent to have the agreement in place. Should the swap be drawn on, the details of the liquidity facilities provided would depend on the specific market circumstances at the time.

The Bank of Canada continues to closely monitor global market developments and remains committed to providing liquidity as required to support the stability of the Canadian financial system and the functioning of financial markets.

Bank of England

Bank of England Actions

The Bank of England will offer to lend each day US dollar funds overnight against eligible collateral. The first such operation will take place today. The amount offered in each repo operation will initially be $40bn. This amount will be reviewed on a regular basis, in consultation with the other central banks.

The US dollar repo operations will take the form of an auction. Eligible collateral will consist of securities routinely eligible in the Bank’s short-term repo Open Market Operations together with conventional US Treasuries.

The Bank of England has concluded a reciprocal swap agreement (swap line) with the Federal Reserve. Through this arrangement the Federal Reserve will provide the Bank of England with US dollar funding to facilitate these operations.


ECB Actions

The Governing Council of the ECB has decided to reinforce its joint action with the Federal Reserve by adding an overnight maturity to its operations providing US dollar funding to Eurosystem counterparties and by increasing the amounts offered in the Term Auction Facility operations.

As regards the overnight US dollar funding, the Eurosystem shall conduct US dollar liquidity-providing operations with its counterparties against Eurosystem-eligible collateral, applying a variable rate tender procedure. It is intended to continue the provision of US dollar liquidity for as long as needed in view of the prevailing market conditions. The US dollars will be provided by the Federal Reserve to the ECB, up to USD 40 billion by means of a temporary reciprocal currency arrangement (swap line). The operational details can be obtained from the ECB’s website (

As regards the Term Auction Facility operations, the Governing Council of the ECB has decided, in conjunction with the Federal Reserve, to increase the amount of US dollar liquidity provided to the counterparties of the Eurosystem to USD 25 billion for the 28-days maturity operations, and to USD 15 billion for the 84-days maturity operations.

Overall, the dollar funding operations conducted by the Eurosystem could reach an outstanding amount of USD 110 billion, compared to the current USD 50 billion.

Bank of Japan

Bank of Japan Actions

At the unscheduled Monetary Policy Meeting held today, the Bank of Japan concluded a U.S. dollar swap agreement with the Federal Reserve of up to USD 60 billion and decided to introduce U.S. dollar funds-supplying operations, with the funds provided under the agreement, to supply U.S. dollar funds to market participants in Japan, in conjunction with the Federal Reserve. The Bank will supply U.S. dollar funds appropriately in view of the prevailing market conditions.

The Bank will continue to strive to maintain market stability through money market operations.

Swiss National Bank

Swiss National Bank Actions

In consultation with the Federal Reserve, the Swiss National Bank has decided to step up its US dollar repo auctions. The SNB will now hold US dollar repo auctions with a term of 1 day (overnight) on a daily basis and increase the volume of the previous auctions with a term of 28 and 84 days respectively. The US dollar repo auctions ease access to US dollar liquidity for SNB counterparties. Taking the market situation into account, the SNB plans to make US dollar liquidity available for as long as it considers this to be necessary.

Starting today, the SNB will hold US dollar auctions with a term of 1 day (overnight) on a daily basis, for an amount of up to USD 10 billion. The volume of the outstanding US dollar repo transactions with a term of 28 days will be increased from USD 6 billion to USD 8 billion and the volume of repo transactions with a term of 84 days from USD 6 billion to USD 9 billion. As before, these auctions will be held once every two weeks on an alternating basis. An auction schedule with the respective volumes is available at The maximum total amount outstanding for all terms is now USD 27 billion, as compared to the previous USD 12 billion.

Further information on the US dollar auction and the technical requirements will be posted on the SNB website (, under Financial markets / US dollar auctions).

The Federal Reserve will offer US dollar liquidity up to USD 27 billion within the framework of a mutual swap agreement (swap line).

S&P; Futures spiked on the news by about 12 points.

This effort will fail because the problem is a solvency issue not a liquidity issue.

Mike “Mish” Shedlock
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