Central banks bring more credit options to banks

Photo: ANP

The European Central Bank (ECB), the Federal Reserve and the four central banks will offer banks more credit options in the future. In times of economic uncertainty, customers want to ensure that they have enough cash in their banks if they want to withdraw more money. The move, announced just hours after UBS’s takeover of troubled Credit Suisse, should allay concerns among clients and investors.

The ECB, the central bank and the central banks of Switzerland, the United Kingdom, Japan and Canada will issue swap rates on a daily basis until at least the end of April. So far this happens once a week. In a joint statement, the central banks called those swap lines “an important liquidity emergency measure” to address tightness in global markets. By making more money available, central banks want to prevent banks from under-lending to firms and households.

In American Silicon Valley Bank, the lack of readily available cash was one of the reasons for the bank run that led to the bank’s collapse. The bank had tied up most of its cash in financial products, which were supposed to be held for a long time. A bailout for Credit Suisse could lead to other banks holding less money because shares of Credit Suisse or other financial products linked to that bank have lost value.

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