Central banks act again to preserve liquidity

Led by the US Federal Reserve, five central banks have announced measures to improve short-term liquidity as the financial sector remains short of funding.

The Fed doubled the size of its term loan facility to $200 billion - the increase to $100 billion was announced on March 7. It will make 28-day loans backed by government securities, agency residential mortgage-backed securities (RMBSs) or non-agency AAA-rated RMBSs.

It will also provide the Swiss National Bank and the European Central Bank with $6 billion and $30 billion (up from $2 billion and $20 billion) in funding through temporary swap lines, allowing the banks to resume their US dollar funding operations.

Meanwhile, the Bank of England has announced it will continue its use of repo offers with a £10 billion three-month offer on March 18, and a further offer of unspecified size in April. Both will use the same wider range of acceptable collateral as in December and January, which includes AAA-rated covered bonds, asset-backed securities and agency RMBSs and bonds.

And the Bank of Canada said it would provide $2 billion in 28-day repo agreements on March 20 and April 3, using either government or government-guaranteed securities or short-dated bearer deposit notes and bankers' acceptances.

Although it did not participate, the Bank of Japan said it welcomed the measures and would "continue to conduct money market operations" to provide sufficient funding. Stefan Ingves, the governor of the Swedish Riksbank, said: "In Sweden we do not currently see that the banks have any additional borrowing needs. However, Sweden is also affected by the renewed pressures in the international financial markets. This can be seen, for instance, in the rising interbank rates. We have close and regular contacts with the banks and other market agents and are closely monitoring market developments.”

The benchmark three-month Libor rose to 5.7918% today, the highest it has been since January 3 this year. The European interbank rate hit 4.235%, the highest since January 11.

See also: ECB takes further steps to improve liquidity 
Central banks offer $20bn auctions to revive liquidity 
ECB re-enters money markets as fears of volatility return 
Bank of England and ECB act to boost markets