Central banks are taking action to enhance the provision of liquidity through the US dollar liquidity swap line and repo operations.
The Bank of England (BoE), the Bank of Canada, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank have agreed to increase the frequency of seven-day maturity operations from weekly to daily to improve the swap lines’ effectiveness in providing US dollar funding.
In-line with these plans, BoE will increase the frequency of seven-day maturity US dollar repo operations from weekly to daily, commencing on Monday 20 March 2023 and continuing until Friday 28 April 2023.
The operations will take place at 08.15 GMT, the closing time for bids will be 08.45 GMT, and the results of the day’s USD repo operation will be announced by the BoE at 10:00 GMT, or as soon as possible thereafter.
The pricing for seven-day standing US dollar repo operations will be the matched maturity US dollar overnight index swap (OIS) rate plus 25 basis points.
The market notice comes as a result of the Credit Suisse Group crisis. Previously, Credit Suisse suffered losses of close to US$5.5 billion with the default of Archegos Capital Management — an in-depth discussion on the default of Archegos and the impact on Credit Suisse can be found in SFT Issue 284 and SFT Issue 289.
According to BoE, the network of swap lines among these central banks is a set of available standing facilities and “serves as an important liquidity backstop to ease strains in global funding markets”.
The initiative aims to help mitigate the effects of such strains on the supply of credit to households and businesses.
Investment bank UBS has since announced its takeover of Credit Suisse “to secure financial stability and protect the Swiss economy in this exceptional situation”, according to the Swiss National Bank — which has provided “substantial liquidity assistance” to aid the transition.
Secretary of the treasury Janet Yellen and Federal Reserve Board chair Jerome Powell, comments: “We welcome the announcements by the Swiss authorities to support financial stability. The capital and liquidity positions of the US banking system are strong, and the US financial system is resilient. We have been in close contact with our international counterparts to support their implementation.”
Christine Lagarde, president of the European Central Bank, adds: “I welcome the swift action and the decisions taken by the Swiss authorities. They are instrumental for restoring orderly market conditions and ensuring financial stability.
“The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.”
