The Governing Council of the European Central Bank (ECB) decided in co-operation with other central banks the establishment of a temporary network of reciprocal swap lines. This action will enable the Eurosystem to provide euro to those central banks when required, as well as enabling the Eurosystem to provide liquidity operations, should they be needed, in Japanese yen, sterling, Swiss francs and Canadian dollars (in addition to the existing operations in US dollars). The ECB will regularly conduct US dollar liquidity-providing operations with a maturity of approximately one week and three months at the new pricing. The schedule for these operations, which will take the form of repurchase operations against eligible collateral and will be carried out as fixed-rate tender procedures with full allotment, will be published today on the ECB’s website. In addition, the initial margin for three-month US dollar operations will be reduced from currently 20% to 12% and weekly updates of the EUR/USD exchange rate will be introduced in order to carry out margin calls. Those changes will be effective as of the operations to be conducted on 7 December 2011. Further details about the operations will be made available in the respective modified tender procedure via the ECB’s Website. Information on the actions to be taken by other central banks is available on the following websites: ; Bank of Canada (http://www.bankofcanada.ca) ; Bank of England (http://www.bankofengland.co.uk) ; Bank of Japan (http://www.boj.or.jp/en) ; Federal Reserve (http://www.federalreserve.gov) ; Swiss National Bank (http://www.snb.ch)
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Wednesday, November 30, 2011
30 November 2011 - Coordinated central bank action to address pressures in global money markets
The Governing Council of the European Central Bank (ECB) decided in co-operation with other central banks the establishment of a temporary network of reciprocal swap lines. This action will enable the Eurosystem to provide euro to those central banks when required, as well as enabling the Eurosystem to provide liquidity operations, should they be needed, in Japanese yen, sterling, Swiss francs and Canadian dollars (in addition to the existing operations in US dollars). The ECB will regularly conduct US dollar liquidity-providing operations with a maturity of approximately one week and three months at the new pricing. The schedule for these operations, which will take the form of repurchase operations against eligible collateral and will be carried out as fixed-rate tender procedures with full allotment, will be published today on the ECB’s website. In addition, the initial margin for three-month US dollar operations will be reduced from currently 20% to 12% and weekly updates of the EUR/USD exchange rate will be introduced in order to carry out margin calls. Those changes will be effective as of the operations to be conducted on 7 December 2011. Further details about the operations will be made available in the respective modified tender procedure via the ECB’s Website. Information on the actions to be taken by other central banks is available on the following websites: ; Bank of Canada (http://www.bankofcanada.ca) ; Bank of England (http://www.bankofengland.co.uk) ; Bank of Japan (http://www.boj.or.jp/en) ; Federal Reserve (http://www.federalreserve.gov) ; Swiss National Bank (http://www.snb.ch)
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6 comments:
What bothers me so much is. What do the central banks know that the market doesn't, which caused this move? No conspiracy theories please.
Is it because the liquidity in terms of US dollars for the European banks was so atrocious ( market frozen), that they had to basically get more dollars into the ECB, so they could stay afloat? And that the FED didn't want to do it alone, in order to show a more solid front worldwide? ( which would help with the politics at home of course)
All cynicism aside, something had to be going on.
(cynicism and sarcasm on)
It's truly sad to see the rest of the world kicking in, to save the Franco-Prussian Empire, when they could so easily have fixed a lot of this crap, just by helping Greece leave the Euro for a little while, get it's house in order, and then rejoin the Euro if they wished. But know, the power elite had their pride to look after.
From Jeremy Cook tweet: >This may have been a signal that the money markets were a short shove away from complete collapse<
It's because of euroland why this happened. No one, and I mean no one (except the ECB) is lending continental European banks money for any duration longer than five business days.
I really don't know how this is going to help at all. Sure, there's a 50% cut in USD swap cost, but that's swap costs. It's not like the Fed is opening up the taps for Europe, and no one is going to lend European banks any money simply because the ECB can exchange euros for dollars at .5% versus 1% interest. That is a trivial incentive at best, given that euroland's banks are bordering on total collapse
markets up due to access to more fiat money...................I wish i could get hold of billions of fiat money at the same time as everyone else, it seems it is so easy to make money on stock markets that become predictable when the seem to raise on just a whisper of more free money and bail outs, his will only end badly
Central banks from around the world have announced emergency measures to boost liquidity in the global economy and prevent the financial system from freezing up.
In a clear sign that policymakers fear the downturn in the eurozone risks spiralling into a fresh credit crunch – where banks stop lending to each other – they announced "co-ordinated central bank action to address pressures in global money markets".
The Bank of England joined the Federal Reserve, the Bank of Japan, the ECB, the Bank of Canada and the Swiss National Bank in taking the measures. The FTSE 100 index rocketed by 100 points on the announcement to stand at 5481.
The central banks said they would cut the price of emergency dollar loans to cash-strapped banks by 0.5 percentage points, and extend the scheme until February 2013.
They will also establish "temporary bilateral liquidity swap arrangements" between one central bank and another, allowing liquidity to be provided at short notice in any currency "should market conditions so warrant".
The central bankers fear that if financial institutions rein in credit, it will hit ordinary consumers and businesses, and threaten a double-dip recession in the world economy.
"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," they said in a joint statement.
Separately, the ECB, which has come under intense pressure in recent weeks over its role in the deteriorating eurozone crisis, said it would now be able to provide liquidity to struggling banks in yen, sterling, Swiss francs and Canadian dollars if necessary.
Central banks have become increasingly nervous in recent days as declining confidence in the health of the euro, and of many major banks in the single currency zone, has pushed up the cost of funding for banks whose balance sheets have already been ravaged by the credit crunch and the recession.
The minutes of this month's meeting of the Bank of England's monetary policy committee showed that its members believed UK banks could only withstand the increase in funding costs for a relatively short period of time before they would be forced to rein in credit to domestic borrowers.
Separately, the Bank's financial policy committee had warned that emergency measures might be warranted if the situation in the eurozone deteriorated further.
NEW YORK -(Dow Jones)- Three substantial economic developments announced in quick succession, including efforts to make dollar funding cheaper for European banks, drove buyers into global equity markets and pushed U.S. stocks sharply higher Wednesday shortly after the opening bell.
Central banks around the globe announced a coordinated plan to support the global financial system that has been roiled for months by Europe's debt crisis. The announcement came after China indicated it would loosen monetary policy by lowering the reserve requirement ratio for banks. And a report on the labor market showed private-business hiring rose by 206,000 in November, the largest monthly gain this year.
The Dow Jones Industrial Average surged 322 points, or 2.8%, to 11877. All 30 Dow components rose, led higher by Caterpillar's 5.3% gain. The Standard & Poor's 500-stock index jumped 32 points, or 2.7%, to 1227. Material and energy stocks were the biggest gainers. The technology-oriented Nasdaq Composite gained 69 points, or 2.8%, to 2584.
The major announcement was the coordinated plan by global central banks. The Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 0.50 percentage point.
That takes the new rate down to the U.S. dollar overnight index swap, or OIS, rate plus 0.50 percentage point, the Fed said, with the goal of easing strains in global financial markets.
"One of the risks that we saw derailing improving U.S. markets was the funding markets," said Michael Shaoul, chief executive at brokerage firm Oscar Gruss. "Today's move is clearly attempting to address that."
The action comes after Standard & Poor's Ratings Services late Tuesday downgraded more than a dozen large banks, including the six biggest U.S. financial institutions. The credit downgrade will make it more expensive for those banks, including J.P. Morgan Chase and Bank of America, to fund their day-to-day activities in the overnight debt markets.
While the coordinated central bank effort doesn't address the fundamental problems associated with European government debt, it underscores a "sense of urgency" to address the broad issues ailing the global financial system, according to Seth Setrakian, co-head of trading at First New York Securities.
"The Fed and other central banks saw a very scary situation developing. There was a sense of urgency to act, especially after S&P took action last night," Setrakian said. "They're trying to take any action they can before having to rely on the [European Central Bank] or [International Monetary Fund]. They're hoping this stems the panic."
European markets jumped. The Stoxx Europe 600 rose 2.9%, while the German DAX surged 4.3% and the France CAC 40 increased 3.6%.
Gold futures gained 1.6% to $1,745 an ounce, while crude oil futures jumped 1.4% to $101.15. The U.S. dollar fell sharply against the euro and the yen.
The People's Bank of China indicated it was loosening monetary policy after it said the reserve requirement ratio for banks will be lowered by 0.50 percentage point as of Dec. 5 in an effort to boost liquidity. China's central bank had previously raised the reserve requirement ratio six times this year.
Additionally, private-sector jobs in the U.S. rose by 206,000, according to Automatic Data Processing and consultancy Macroeconomic Advisers, which came in well ahead of the 130,000 gain economists were expecting
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