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The
Fed started offering dollars in daily tenders from late March
after the failure of Silicon Valley Bank and the sale of Credit
Suisse sent jitters across financial markets and raised the risk
of liquidity shortages that could have morphed into a broader
financial crisis.
But the central banks of the euro zone, Japan, Britain and
Switzerland will now revert to their usual weekly tenders,
indicating that the extraordinary backstop is no longer needed
as markets are functioning as intended.
While there was some take-up in the daily tenders in the early
days, especially from Switzerland, the daily facility was barely
used and there was little to no interest on most days.
"These central banks stand ready to re-adjust the provision of
U.S. dollar liquidity as warranted by market conditions," the
ECB said in a statement.
Swap lines are liquidity backstops to ease strains in global
funding markets and they have been a permanent feature of the
cooperation between top central banks for more than a decade.
Central banks' local currency liquidity operations have also
been little used in the past month, suggesting that copious
excess liquidity, part of the banking system for the past
decade, continues to keep the bank sector well oiled.
Still, some policymakers have warned that the volatility is
likely to leave a more permanent mark by making banks more
cautious in how they lend, pushing up borrowing costs and
tightening lending standards.
This could then reduce the need for central banks to raise
interest rates in their fight against sky high inflation as
commercial banks do their work for them.
The extent of such a tightening is far from clear, however, and
it could still take weeks if not months for policymakers to
assess the longer term impact.
Big central banks with the notable exception of the Bank of
Japan have been raising rates at a brisk pace with the Fed and
ECB both expected to move again next week.
(Reporting by Balazs Koranyi, Leika Kihara and William Schomberg;
editing by Alison Williams and Jason Neely)
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