(Bloomberg) — The Federal Reserve and global counterparts will revert to fewer auctions for dollar funding after financial-market tensions in the wake of US bank failures subsided.
(Bloomberg) — The Federal Reserve and global counterparts will revert to fewer auctions for dollar funding after financial-market tensions in the wake of US bank failures subsided.
The joint announcement on Tuesday shifts the frequency of such emergency liquidity provision to a weekly basis rather than the daily offerings announced on March 19. The lower frequency of auctions will begin on May 1.
The decision effectively amounts to an official downgrade in the threat level to world financial stability to a status closer to relative normality. That draws a line on a tense moment that had briefly inspired nervous parallels to the global financial crisis of 2008.
Central banks unveiled the daily dollar operations just days after a catastrophic run on Silicon Valley Bank and two other associated failures in the US. The stress had also spread to Switzerland, where Credit Suisse Group AG was forced into a takeover by rival UBS Group AG — marking in effect the first downfall of a globally systemic financial institution since the 2008 turmoil.
“In view of the improvements in US dollar funding conditions and the low demand at recent US dollar liquidity-providing operations, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, in consultation with the Federal Reserve, have jointly decided to revert the frequency of their 7-day operations from daily to once per week,” they said in a statement.
The reactivation of such joint measures first used during the global financial crisis and deployed during the pandemic too demonstrated how the central-banking community’s financial-stability infrastructure and cooperation remains robust. The Fed and its counterparts will revert to greater frequency if needed.
“These central banks stand ready to re-adjust the provision of US dollar liquidity as warranted by market conditions,” they said in their statement. “The swap lines among these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.”
–With assistance from Greg Ritchie.
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