Response to banking turbulence: Central banks want to improve supply of dollars

Response to banking turmoil
Central banks want to improve dollar supply

The crisis at the major Swiss bank Credit Suisse is causing unrest on the financial markets. In response, the ECB, Fed and other central banks decide to facilitate transactions in US dollars.

The European Central Bank (ECB), the US Federal Reserve and other major central banks have announced a “coordinated measure” to ease dollar banking to calm financial markets. As the central banks involved announced on Sunday evening, so-called swap transactions are to be expanded as of today, with which the central banks exchange currencies with one another. Central banks outside the USA should be better supplied with dollars.

In addition to the ECB and the Fed, the Swiss National Bank and the central banks of Great Britain, Canada and Japan are also involved. They reportedly agreed to increase the frequency of seven-day dollar currency swaps from weekly to daily. Daily operations are expected to continue until at least the end of April.

Swaps are an important “liquidity hedge to ease tensions in global financing markets, thereby helping to mitigate the impact of such tensions on household and corporate credit,” the statement said.

Shortly before, the major Swiss bank UBS had announced that it would take over the struggling competitor for three billion francs. UBS and Credit Suisse are among the 30 banks worldwide classified as “too big to fail” because their failure would have a devastating impact on the global economy.

Credit Suisse has recently come under further pressure after a series of previous scandals, including the closure of two US banks, Silicon Valley Bank and Signature Bank, which had worried the financial sector. Statements by Credit Suisse’s largest shareholder, the Saudi National Bank from Saudi Arabia, that it did not want to increase investments in the second-largest Swiss bank sent the price plummeting.

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