Swap lines are “an important liquidity support to ease stress in global funding markets,” the Fed said.
Updated at 7:01 pm EST
The Federal Reserve established a new US dollar swap facility with five other major central banks in an effort to ensure smooth funding conditions amid growing concerns about the health of the global financial system.
The Fed said it would increase the frequency of so-called swap lines, which provide access to funding in US dollars, from weekly to daily with the European Central Bank, the Bank of Japan, the Bank of England, the Bank of Canada and the Bank. Swiss national.
“The network of swap lines between these central banks is a set of standing facilities available and serves as an important liquidity backstop to ease stress in global funding markets, thus helping to mitigate the effects of such stress on the supply of credit to households and businesses, the Fed said in a statement posted on its website.
The move follows the Credit Suisse bailout on Sunday night. (CS) – Get a free reportwhich was sold at the behest of Swiss authorities to its cross-town rival, UBS Group (UBS) – Get a free reportfor about $3 billion after days of speculation about the health and capital position of one of the twenty largest banks in the world.
- UBS acquires Credit Suisse for over $3 billion
UBS will pay around $3 billion for Credit Suisse in a share deal that values the bank at 0.76 Swiss francs per share, a 60% discount from its closing value on Friday. UBS will also get Swiss franc backing of $9 billion in unrealized losses at Credit Suisse.
The Swiss National Bank said the deal, which includes 100 billion Swiss francs ($104 billion) in liquidity assistance for both companies, “will ensure financial stability and protect the Swiss economy in this exceptional situation.” Karin Keller-Sutter, Switzerland’s finance minister, added that a Credit Suisse failure would have had “irreparable consequences” for global financial markets.
The US banking crisis is also simmering, with a second downgrade for San Francisco-based lender First Republic Bank. (FRC) – Get a free reportby Standard & Poor’s and the bankruptcy filing Friday night of SVB Financial, parent of the failed Silicon Valley Bank, which was placed under the administration of California regulators on March 10.
S&P, which downgraded First Republic three notches to junk status at B+, said it faced “high liquidity stress with substantial outflows.”
- First Republic shares fall on report Bank exploring put option
Last week, in an effort to ease concerns about the health of US bank deposits, the Fed launched a new bank loan program, offering unlimited funds, if backed by high-quality collateral, to distressed US lenders.
Those securities will not be subject to the usual discount, or haircut, when used as loan collateral, the Fed said, allowing US banks to get quick cash based on their full face value.
Banks are sitting on an estimated $620 billion of unrealized losses from Treasuries, agencies and MBS following the rise in market interest rates that has flooded fixed income portfolios around the world.
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