SAN FRANCISCO (Reuters) - The Federal Reserve’s decision to reopen currency swap lines to the European Central Bank as part of a campaign to calm markets roiled by Greece’s debt crisis came after a “personal appeal” from the ECB chief to his Fed counterpart, transcripts from an emergency Fed meeting May 9, 2010 show.
“Yesterday (ECB chief) Jean-Claude Trichet called me and made what I would characterize as a personal appeal to reopen the swaps that we had before,” Ben Bernanke, the Fed chairman at the time, told his colleagues at the unscheduled meeting.
The transcripts, which are released after five years, show how closely Bernanke worked with Trichet, who shared “highly confidential” information about the ECB’s part in a $1 trillion “shock and awe” rescue plan launched by EU leaders to combat an escalating sovereign debt crisis in Europe.
They also show the level of concern among Fed officials that the situation stressing European banks holding sovereign debt could have spiraled into a new global financial crisis.
“I think this is an incredibly perilous moment and that it’s essential that we participate in a forceful, coordinated global effort to contain the risks to the global financial system and economy at this point,” Janet Yellen, the current Fed chair who was San Francisco Fed president then, said at the time.
The transcripts revealed that Bernanke also was worried about a possible political backlash at home, if the Fed’s actions were seen as simply a bailout for foreign nations rather than a critical part of an international effort to stave off another financial crisis.
“We can’t ignore the politics of this by any means,” Bernanke told his colleagues at the meeting, adding that he had already spoken with administration officials who assured him they would back any Fed action “100 percent” and would work to defend the Fed against any political attacks.
“Certainly, if we decide to go ahead with this, I will be talking to some Republicans, because I assume the Administration will talk to Democrats, and we’ll just try to make sure, within the bounds of keeping this quiet—and, obviously, that’s a potential issue—that we get a broad understanding of what we’re doing,” Bernanke said.
Late on May 9, the Fed announced the return of swap lines without limit with the European Central Bank, the Bank of England and the Swiss National Bank as European authorities announced a huge aid package to prevent contagion from the Greek debt crisis.
Reporting by Ann Saphir and David Lawder; Editing by Andrew Hay
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