In order to provide broad access to liquidity and funding to financial institutions, the Bank of England (BoE), the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank (SNB) are jointly announcing further measures to improve liquidity in short-term U.S. dollar funding markets.
The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment. Funds will be provided at a fixed interest rate, set in advance of each operation. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded. The Bank of Japan will be considering the introduction of similar measures.
Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets.
Federal Reserve Actions
To assist in the expansion of these operations, the Federal Open Market Committee has authorized increases in the sizes of its temporary swap facilities with the BoE, the ECB, and the SNB, so that these central banks can provide U.S. dollar funding in quantities sufficient to meet demand.
These arrangements have been authorized through April 30, 2009.
Information on Related Actions Being Taken by Other Central Banks
Information on the actions that will be taken by the other central banks is available at the following websites:
On October 9th I wrote that You Cannot Patch a Busted Dam With Water.
Nonetheless, it seems the Fed is determined to try, and I even have a picture to prove it. Photographer Keith Taylor was present at the Fed's announcement this morning and captured this rather amazing image of the event.
Nationalization of banks and announcements of unlimited liquidity measures are not good things. However, but we have seen this playbook before. The futures are jumping once again during options expiration week.
It is likely the move off Friday's low started wave 4 of 3 up. Please see S&P 500 Crash Count for a reference.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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