Foreign Central Bank Currency Liquidity Swaps (Federal Reserve)

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The Foreign Central Bank Currency Liquidity Swaps

This program provided guaranteed credit accounts to foreign central banks to draw upon when they engaged in U.S. dollar transactions on the market.

Wall Street Bailout Accounting
(back to main table)
FED MORTGAGE-BACKED SECURITIES PURCHASESFOREIGN CENTRAL BANK CURRENCY LIQUIDITY SWAPS
Balance Sheet
Disbursed*: $582.761B[1]
Current outstanding: $0[2]
Public Funds
Maximum at-risk: $755B[3]
Current at-risk: $0B[4]

* See the methodology and glossary for definitions of "disbursed," etc.

Funding agency and aid type

The funding agency was the Federal Reserve.

Credit guarantees.

Who benefits

Background

Program expired Feb. 1, 2010.[5]

SIGTARP: [6]

“Foreign Central Bank Currency Liquidity Swaps — Total Potential Support: $755 Billion. On December 12, 2007, the FOMC announced that it had authorized dollar liquidity swap lines with the European Central Bank and the Swiss National Bank in order to “provide liquidity in U.S. dollars to overseas markets.”

Since then, the program has expanded to include additional central banks. The Federal Reserve describes the transactions as follows:

“These swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve. When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank’s account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.”

Notes

Prins: “Because of the global nature of bank funding markets, the Federal Reserve coordinates with other central banks to provide liquidity. The Federal Reserve has entered into agreements to establish temporary reciprocal currency arrangements (central bank liquidity swap lines) with a number of foreign central banks. Two types of temporary swap lines have been established: dollar liquidity lines and foreign-currency liquidity lines.”[7]

Prins: “The Fed has provided $755 billion [PDF] for currency liquidity swaps with foreign central banks.” [8]


Articles and resources

[9] [10]

Related SourceWatch articles

References

  1. Federal Reserve Bank of St. Louis, “Series: WTERAUC - Reserve Bank Credit - Term Auction Credit,”[ http://www.research.stlouisfed.org/fred2/data/WLIQSWP.txt]March 12, 2010.$582.761 is the high-water-mark for the swap accounts in this program on July 6, 2011.
  2. Federal Reserve Bank of St. Louis, “Series: WTERAUC - Reserve Bank Credit - Term Auction Credit,”[ http://www.research.stlouisfed.org/fred2/data/WLIQSWP.txt]July 6, 2011.
  3. Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress – July 21, 2009,”[ http://www.sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdf] p. 146-147.
  4. Federal Reserve Bank of St. Louis, “Series: WTERAUC - Reserve Bank Credit - Term Auction Credit,”[ http://www.research.stlouisfed.org/fred2/data/WLIQSWP.txt]March 12, 2010.
  5. Federal Reserve, “Credit and Liquidity Programs and the Balance Sheet,” updated Feb. 17, 2010, http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm, accessed Mar. 13, 2010.
  6. SIGTARP July 2009 report, p. 146-147.
  7. U.S. Office of SIGTARP, Quarterly Report to Congress July 2009, July 21, 2009, p. 140, http://sigtarp.gov/reports/congress/2009/July2009_Quarterly_Report_to_Congress.pdf; Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and the Balance Sheet, August 6, 2009, http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm.
  8. Prins’ Mother Jones analysis. Dec. 21, 2009. http://motherjones.com/politics/2009/12/behind-real-size-bailout
  9. FRBSTL accounting
  10. Fed homepage

External resources


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