Central banks join forces to provide fresh dollar and euro liquidity
20 March 2020 Frankfurt
Image: Shutterstock
The European Central Bank (ECB) and Danmarks Nationalbank are the latest central banks to open new swaps lines to inject much-needed liquidity into financial markets struggling to cope with the coronavirus-inspired disruption.
The ECB initiated its swap line with its Danish counterpart yesterday and increased the maximum amount to be borrowed by Danmarks Nationalbank from €12 billion to €24 billion.
The swap line will allow Danmarks Nationalbank to provide additional euro liquidity to Danish financial institutions.
Both banks confirmed the new swap line would remain in place “for as long as needed”.
The deal comes days after several central banks, including the US Federal Reserve, the ECB, the Bank of England, and the Bank of Japan, unveiled a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements.
The joint-action also includes the Bank of Canada and the Swiss National Bank.
The central banks agreed to lower the pricing on the standing US dollar liquidity swap arrangements by 25bps, making the new rate will be the US dollar overnight index swap (OIS) rate plus 25bps.
The group further confirmed that, to increase the swap lines’ effectiveness in providing term liquidity, the foreign central banks with regular US dollar liquidity operations will now offer US dollars weekly in each jurisdiction with an 84-day maturity.
This will come in addition to the one-week maturity operations currently offered.
The new dollar swap lines came into effect this week and will remain in place until US dollar funding markets return to normal parameters.
The ECB initiated its swap line with its Danish counterpart yesterday and increased the maximum amount to be borrowed by Danmarks Nationalbank from €12 billion to €24 billion.
The swap line will allow Danmarks Nationalbank to provide additional euro liquidity to Danish financial institutions.
Both banks confirmed the new swap line would remain in place “for as long as needed”.
The deal comes days after several central banks, including the US Federal Reserve, the ECB, the Bank of England, and the Bank of Japan, unveiled a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements.
The joint-action also includes the Bank of Canada and the Swiss National Bank.
The central banks agreed to lower the pricing on the standing US dollar liquidity swap arrangements by 25bps, making the new rate will be the US dollar overnight index swap (OIS) rate plus 25bps.
The group further confirmed that, to increase the swap lines’ effectiveness in providing term liquidity, the foreign central banks with regular US dollar liquidity operations will now offer US dollars weekly in each jurisdiction with an 84-day maturity.
This will come in addition to the one-week maturity operations currently offered.
The new dollar swap lines came into effect this week and will remain in place until US dollar funding markets return to normal parameters.
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