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Thursday, April 09, 2009

 

foreign currency swap lines for the fed


via alea:

Five central banks have agreed to currency swap lines that enable the Federal Reserve to provide foreign currencies to U.S. financial institutions.

Q: What does it mean?

A: So far the funding shortfall was thought to be largely a USD problem, the C.B.s are telling us loud and clear, it isn’t.


the fed is opening lines that could help american banks funds foreign capital flight from the united states. this is disturbing.

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GM:

Can you elaborate on this point and compare it to the USD swap lines previously provided by the FED to other CBs?

 
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my understanding -- which is sketchy -- is that previous swap lines were designed to provide euro CBs with dollar funds to lend to their commercial banks -- the fed did not then receive funds that it could lend in return. the fed was exposed to euro CB counterparty risk, euro CB exposed to credit risk.

this works the other way around.

 
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What's this stuff about a secret bailout for Reijkavik-on-Thames

 
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jck addresses buiter. it would appear that buiter does not understand forex swaps.

 
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