June 29, 2011 / 1:41 PM / 8 years ago

UPDATE 1-Fed extends dollar swap lines with central banks

(Updates with Fed announcement, changes dateline from NEW YORK)

WASHINGTON, June 29 (Reuters) - The Federal Reserve said on Wednesday it extended its dollar liquidity swap lines to the European Central Bank and counterparts in Britain, Canada and Switzerland by one year amid continued worries about Europe’s soverign debt crisis.

The Bank of Japan will consider the extension to Aug. 1, 2012, at its next monetary policy meeting, the Fed said.

The swap lines allow foreign central banks, including the ECB, the Bank of England and the Canadian, Japanese and Swiss central banks to borrow an unlimited amount of dollars for a fee and lend them out to banks in their home countries.

The swap lines had been set to expire Aug 1.

Just after the extension was announced, Greece’s parliament approved the first of two votes in favor of a five-year austerity plan, clearing a major hurdle in the country’s bid to avoid default by accessing aid from the European Union and International Monetary Fund.

A liquidity crunch similar to the one that occurred during the 2008 credit crisis was in danger of developing in Europe, where regional banks’ exposure to Greece and other struggling euro zone countries was making borrowing in the money markets difficult.

European banks need dollars to fund their dollar-denominated assets, such as mortgage bonds. In a crisis, dollars would be difficult to ßbtain. (Reporting by Emily Flitter in New York and David Lawder; Editing by Kenneth Barry)

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