The US Federal Reserve, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan announced a currency swap arrangement that will give the US central bank access to as much as $290 billion in euros, yen, British pounds and Swiss francs.
The Federal Reserve in turn will lend this to US institutions with pressing short-term needs for loans in those currencies.
''Should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap arrangements with the relevant central banks,'' the Fed said in a statement yesterday.
''Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets,'' it added.
The arrangements ''would enable the provision of foreign currency liquidity by the Federal Reserve to US financial institutions,'' the Bank of Japan said.
The swap lines, which are authorised until October 30, allow the Fed to borrow 30 billion British pounds ($44 billion), 80 billion euros ($107 billion), 10 trillion yen ($99 billion), and 40 billion Swiss francs ($35 billion) to American companies, the statement added.
The Fed had previously established currency swap lines with 14 other central banks so they had US dollars to lend in their markets. These include the Reserve Bank of Australia, the Monetary Authority of Singapore, and the Norges Bank.
The first swaps were established in December 2007, and over time were extended to a wider range of foreign central banks.
The Fed attempted to ease the squeeze by increasing its own loans. Discount window loans, where banks post collateral for up to 90 days of cash, totaled $58 billion 1 April . Term auction credit, where banks can bid for 28- or 84-day loans, stood at $467 billion, and another Fed backstop facility held $248 billion in face value of commercial paper. Total assets on the Fed's balance sheet are up $1.1 trillion from a year ago to $2 trillion.
''The Fed was able to make currency swap arrangements on short notice but our reaction time could be even shorter if we keep such arrangements in place or on standby,'' Fed Vice Chairman Donald Kohn said last year.
Central bank currency swaps don't carry exchange-rate risk because the reversal, which could be as long as three months later, uses the same rates, the Fed says. All told, the Fed's balance sheet reported $308.8 billion in central bank liquidity swaps as on 1 April.