ECB Steps up Measures To Contain Banking Sector Stress
19 March 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank announced late Sunday that, in coordination with the Federal Reserve and other major central banks, US dollar 7-day maturity operations would now be available on a daily basis.
In a statement released on Sunday, the ECB said that, ‘[t]o improve the swap lines’ effectiveness in providing US dollar funding, the central banks currently offering US dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily.’
The new frequency would be effective from Monday and remain in place until at least the end of April ‘to support smooth functioning of US dollar funding markets’, the ECB said.
The decision came hours after the Swiss government announced that UBS would be taking over its ailing rival Credit Suisse. There are fears that the crisis in the banking sector could spread to the Eurozone and increase stress in bank funding markets this week.
The use of daily dollar swap lines was previously invoked by the major central banks involved in the Fed’s swap line network at the height of the 2020 Covid shock.
In a separate statement on Sunday evening, ECB President Christine Lagarde said that she welcomed ‘the swift action and the decisions taken by the Swiss authorities. They are instrumental for restoring orderly market conditions and ensuring financial stability.’
‘The euro area banking sector is resilient, with strong capital and liquidity positions’, she said. ‘In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.’