ECB, Fed, Swiss Bank take steps to help European banks

The European Central Bank, the US Federal Reserve and the Swiss National Bank yesterday announced new measures to enhance operations that provide US dollar liquidity to European banks.

A key feature of the plan was that starting on August 8, "the ECB will conduct 84-day operations under the Term Auction Facility, while continuing to conduct operations with a maturity of 28 days", a statement said.

That meant US dollars would be made available to European banks over a longer period than has been the case until now.

As a result of the international financial crisis, the Fed, ECB and Swiss National Bank agreed to a currency swap that would let the ECB and SNB provide dollars directly to European banks.

Many banks had invested in securities backed by US mortgages, and when the market for those securities dried up, the banks found it hard to obtain the dollar liquidity needed to keep their operations afloat. The 28-day period is being extended since it has become clear banks need the cash for longer periods to calm the market. The amount of dollars available, $50bn, would be the same, with the exception of a temporary increase to $55bn in the first operation of the transition phase," ECB said.