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Fed strikes currency swap deal with four central banks

WASHINGTON - The Federal Reserve Monday announced a currency swap deal with the central banks of Britain, Japan and Switzerland as well as the European Central Bank aimed at helping US financial institutions.

The arrangement would enable the Fed to then lend, if needed, to US financial institutions in the currencies offered by the four central banks a total amount equivalent to nearly 290 billion dollars, the Fed said in a statement.

The foreign central banks agreed to the move in currency swap arrangements with the US central bank through October 2009, the Fed said.

“The Bank of England, the European Central Bank, the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing swap arrangements that would enable the provision of foreign currency liquidity by the Federal Reserve to US financial institutions,” the Fed said.

“Should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap agreements with the relevant central banks,” the statement said.

It added that central banks continued to work together and were ”taking steps as appropriate” to foster stability in global financial markets.

The Fed explained that the Federal Open Market Committee, the US central bank’s key monetary policy making body, had authorized “new temporary reciprocal currency arrangements” with the four other central banks.

If drawn upon, the Fed said, these arrangements would support operations by the central bank to provide liquidity of up to 30 billion pounds (44.5 billion dollars), 80 billion euros (107.2 billion dollars), 10 trillion yen (99.7 billion dollars) and 40 billion Swiss francs (35.4 billion dollars).

The currency swap arrangement announced Monday reflect tie-ups the four foreign central banks have had with the Fed allowing them to borrow dollars since last year, when financial turmoil started wreaking havoc across the globe, stemming from a US home mortgage meltdown.

The European Central Bank and the Swiss National Bank have conducted auctions of dollar-denominated loans during the 2009 first quarter to help companies meet financing needs.

The Bank of Japan and Bank of England also undertook dollar refinancing bids.

The Fed has not carried out auctions of loans denominated in the currencies of the four nations so far.