Top central banks, faced with the risk of a fast-moving loss of confidence in the stability of the financial system, moved on Sunday to bolster the flow of cash around the world. | Reuters
The daily swaps, beginning Monday and extending until at least the end of April, will “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,” the Fed said in a statement.
But trouble among U.S. midsized lenders as well as the announcement Sunday of an emergency rescue of Swiss giant Credit Suisse Group AG have raised concerns about a looming and possibly contractionary credit crunch. Such a crisis could arise if the public lost faith in banks or banks lost faith in each other and started to limit their exposure to new loans.
Credit Suisse found itself in dire need of liquidity last week until it was thrown a lifeline by its own central bank.The coordinated move announced on Sunday will allow the central banks of the euro zone, Britain, Japan and Canada to each day offer seven-day dollar loans to their banks.
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