Fed, Five Central Banks Cut Rate on Dollar Swaps

The Federal Reserve cut the cost of emergency dollar funding for European banks as part of a globally coordinated central-bank response to the continent’s sovereign-debt crisis. “When there’s concerted action by central banks, it’s definitely good,” said Jens Sondergaard, senior European economist at Nomura International Plc in London. “But are liquidity injections a game changer when the heart of the problem is in European sovereign debt markets?” The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013. Yesterday the ECB allotted the most to banks in its regular seven-day refinancing operation in more than two years, lending 265.5 billion euros. The ECB offers unlimited funding to euro- area banks against eligible collateral. “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,” the statement said.

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