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> Fed Extends Swap Lines With ECB, Other Central Banks (Update2)
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> By Caroline Salas
>
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> Dec. 21 (Bloomberg) -- The Federal Reserve authorized the extension
> through Aug. 1 of its temporary dollar liquidity swap arrangements
> with the European Central Bank and the central banks of Japan,
> Canada, Switzerland and the United Kingdom.
>
> The arrangements had been authorized through January, the Fed said
> today in a statement. Fed officials voted in May to restart the
> emergency currency-swap tool to keep Europe’s sovereign-debt crisis
> from spreading to U.S. markets.
>
> The swaps allow the U.S. central bank to provide the “full
> allotment” of U.S. dollars as needed to European central banks, the
> Fed said in a statement in May. The U.S. central bank had closed on
> Feb. 1 all swap lines opened during the last crisis, triggered by
> the subprime mortgage meltdown in 2007.
>
> The extension of the swaps reflects the Fed’s desire to “keep all
> their options open” to ward off systemic risk rather than a sign of
> increasing threats to U.S. markets, said Ward McCarthy, chief
> financial economist at Jefferies & Co. in New York. Use of the
> liquidity swaps declined to $60 million last week from more than
> $9.2 billion in May, according to the Fed’s weekly reports on its
> balance sheet.
>
> “An ounce of prevention is worth probably a gallon of cure when it
> comes to systemic risk,” McCarthy said in an interview. “We’ve come
> a long way since the darkest days but we’re probably not completely
> out of the woods in terms of the possibility of having more
> financial institutions under duress.”
>
> Libor Rate Rises
>
> The three-month London interbank offered rate was set at 0.303
> percent today, up from 0.284 percent on Nov. 23. Libor, the rate
> banks charge to lend to each other, reached 0.539 percent in June.
>
> “Global tensions have worsened over the past week because of
> Ireland’s crisis,” saidMichael Schubert, an economist at Commerzbank
> AG in Frankfurt. “It doesn’t solve the problem but it’s helping
> soothe symptoms.”
>
> Ireland received a European Union-led 85 billion euro bailout last
> month to combat its fiscal woes.
>
> The ECB said U.S. dollar liquidity-providing operations will
> continue to have a maturity of seven days and take the form of
> repurchase operations against eligible collateral. They will be
> carried out as fixed-rate tenders with full allotment, the ECB in
> Frankfurt said in a separate statement.
>
> In a swap, central banks exchange foreign currency with an agreement
> to reverse the transaction at a later date. The central banks will
> then lend the dollars at fixed rates to firms in their countries.
> Concern that financial institutions were holding too many assets of
> Europe’s most-indebted nations led dollar liquidity to tighten in
> London during May.
>