|The US Federal Reserve
© AFP/File Saul Loeb
WASHINGTON (AFP) – The US Federal Reserve said Wednesday it was extending its emergency liquidity facility for its leading Western counterparts as Europe’s sovereign debt crisis continues to fester.
The US central bank said its existing temporary US dollar liquidity swap arrangements with the European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Canada would be extended for one year from August 1, the expiration of the current pact.
The standby facility allows the foreign central banks to borrow dollars to onlend to their own commercial banks to shore up their own short-term liquidity.
The foreign central banks, and not the commercial banks, are liable for the borrowings.
The agreements were crucial in supporting non-US banks during the height of the financial crisis when they found themselves unable to obtain US dollars in the short-term loan market to cover their own exposure to US liabilities.
The extension of the facility comes as Europe’s commercial banks struggle to protect themselves from exposure to bonds issues by the financially-challenged governments of Greece, Portugal, Ireland, Spain and others.
© AFP — Published at Activist Post with license