Central banks expand dollar operations

Sep 15, 2011



Central banks expand dollar operations






FRANKFURT (Reuters) - Major central banks around the world will cooperate to offer three-month U.S. dollar loans to commercial banks in order to prevent money markets from freezing up because of Europe's sovereign debt crisis.

The European Central Bank said on Thursday it would hold three fixed-rate operations between October and December to offer banks as many dollars as they needed, in order to ease any funding crunch in the year-end period.

The announcement sharply boosted European bank shares and the euro. Shares in French bank BNP Paribas jumped as much as 13 percent before coming off their highs.

"The European Central Bank has decided, in coordination with the (U.S.) Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three U.S. dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year," the ECB said.

Some European banks have struggled to obtain dollar funding in the last several months as lenders have become increasingly nervous about the euro zone debt crisis and the global economic slowdown.

The ECB already offers seven-day dollar loans every week, and this offer was tapped for the second time in a month on Wednesday. Previously, banks had not used the ECB's dollar operation since February.

The Federal Reserve maintains dollar swap lines with the ECB and other central banks in order to ensure that they can obtain additional supplies of dollars when needed.


Source: Reuters US Online Report Top News


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