FRANKFURT Dec 17 Currency swap lines linking
world central banks help make global banks more resilient in
times of financial stress and protect American households and
firms from the knock-on effects of such episodes, a top Federal
Reserve official said on Monday.
Top central banks around the world last week renewed a
series of currency swap lines set up during the 2007-2009
financial crisis, providing a precaution against future market
"The Federal Reserve's temporary dollar liquidity swap lines
with the European Central Bank and other central banks are an
effective response to stresses in dollar funding markets," Fed
Board Governor Jeremy Stein said in remarks prepared for
delivery to the Global Research Forum, International
Macroeconomics and Finance, at the European Central Bank. "These
lines have helped avert fire sales of dollar assets and maintain
the flow of credit to U.S. households and firms."
The Fed last week said it had extended for another year the
dollar swaps with the European Central Bank, Bank of Canada,
Bank of England and Swiss National Bank.
Stein, who did not comment on the U.S. economic outlook or
monetary policy in his prepared remarks, said proposed rules to
boost liquidity at foreign banks should also help make non-U.S.
banks more resilient.
"These rules should reduce the pressure on foreign banks
that rely heavily on short-term dollar funding to either sell
illiquid dollar assets or cut back on dollar lending in times of
financial stress," he said. "By helping to alleviate disruptions
in dollar funding markets the rules should also reduce the
reliance on swap lines in a future stress episode."
Swap lines were an important part of the powerful response
launched by monetary authorities during the crisis to keep
global financial markets open, curbing lofty dollar funding
costs which had spiraled due to fear over counter-party risk.
Swap arrangements were revised and extended in November,
2011 as the euro zone debt crisis intensified, to ease the
dollar funding pressure being experienced by some European