Central banks create additional lending options for banks
The European Central Bank (ECB), the Federal Reserve and four other central banks will offer additional lending options to banks in the near future. By doing so, they want to make sure that those banks have enough money if customers want to withdraw more money in uncertain economic times. The move, announced just hours after UBS acquired struggling Credit Suisse bank, should allay fears among clients and investors.
The European Central Bank, the Federal Reserve Bank and the central banks of Switzerland, the United Kingdom, Japan and Canada offer so-called swap lines on a daily basis until at least the end of April. So far this has been happening once a week. In a joint statement, central banks called these swap lines an “important emergency liquidity measure” to address the malaise in global markets. By providing additional money, central banks want to prevent banks from lending less to businesses and households.
In the US Silicon Valley bank, the lack of readily available funds was one of the reasons for bank management that led to the collapse of the bank. The bank had a large portion of its money tied up in financial products that had to be held for a longer period. A Credit Suisse bailout may also result in other banks having less money because shares in Credit Suisse or other financial products linked to that bank have lost value.
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