Major central banks coordinated to maintain stability and calm in financial markets amid a broad crisis of trust and volatility in the sector last week. Liquidity will be sustained through currency line agreements with the Bank of Canada, the Bank of England, the Bank of Japan, the Federal Reserve, and the Swiss National Bank, as confirmed by the European Central Bank on Sunday. The arrangement centers on ensuring steady access to dollars when needed.
In particular, the institutions agreed to strengthen barter lines, a mechanism that helps foreign central banks obtain dollar liquidity and increases the pace of dollar transactions. These operations, previously conducted weekly, will occur daily starting Monday, March 20, 2023, and will persist at that intensity at least through the end of April. This step aims to prevent a tightening of financial conditions from spilling over into households and businesses by supporting timely dollar funding.
The clearing lines network functions as a liquidity safety net, intended to ease tensions in global finance and limit the impact of stress on credit supply. By offering a steady flow of liquidity, it helps smooth the transmission of monetary policy and stabilizes funding conditions across markets.
This effort comes during a period of renewed market nerves after the unexpected failure of Silicon Valley Bank and amid rising interest rates designed to cool inflation. Central banks have previously activated and extended similar liquidity facilities in the face of the pandemic, underscoring their role as a backstop for financial stability in times of stress. The Fed, along with other major authorities, signaled readiness to maintain these arrangements as long as needed to support orderly markets.
Decisive action in the same week followed the ECB’s approval of UBS’s takeover of Credit Suisse, a move praised for protecting market order and safeguarding financial stability. Christine Lagarde, the ECB president, described the intervention as a decisive step that helps restore confidence and stabilize market conditions after the rapid development of the situation in Europe. As reported from Geneva, UBS will make a single payment, and Credit Suisse will receive a substantial portion of proceeds that will be retained as a long-term component of Credit Suisse’s corporate structure, with the bank continuing as a subsidiary.
The coordinated measures reflect a broad strategy to maintain trust and ensure liquidity across borders. By reinforcing dollar funding mechanisms and clarifying the path of major bank reorganizations, the policy response aims to reduce disruption to credit markets and support households and businesses through periods of stress. Market participants should expect ongoing monitoring and potential adjustments as economic conditions evolve and regulators assess the effectiveness of these arrangements in sustaining financial stability.