(Bloomberg) — A Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion, in a week of banking stress that has roiled markets.
(Bloomberg) — A Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion, in a week of banking stress that has roiled markets.
The demand came through the Fed’s Foreign and International Monetary Authorities Repo Facility and encompasses the week through March 22. The Fed didn’t provide information on who accessed the funding.
The facility was established in the midst of the pandemic and is designed to help ease any pressures in global dollar funding markets. It allows foreign central banks to post their US Treasury holdings as collateral in exchange for dollar liquidity, which is often in high demand during times of stress.
The latest surge come as concerns about the fragility of the banking sector spread from the US to Europe, culminating in the takeover of beleaguered lender Credit Suisse Group AG.
“Someone, somewhere, needs dollar funding,” said Antoine Bouvet, senior rates strategist at ING Bank NV. It’s “not a huge worry at this stage given the cross-currency bases and also low take-up in dollar FX lines.”
Read more: Central Banks Signal No Dash for Dollars in New Swap Lines
Global policymakers acted Sunday to provide a US dollar backstop to global funding markets. The Fed and five major central bank counterparties that have dollar swap arrangements said they would increase the frequency of operations to daily from weekly. So far, use of those facilities has remained muted.
The rate across key cross-currency basis swaps — a measure of how costly it is to obtain dollars — have also tightened from extremes seen earlier this month.
Still, according to the Fed, the FIMA Repo Facility will “primarily be used only in times of unusual market stress.” That’s because the rate — currently 5% — generally exceeds the cost of funding in private repo markets.
–With assistance from James Hirai.
(Updates with context.)
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