Working Paper: NBER ID: w15763
Authors: Linda S. Goldberg; Craig Kennedy; Jason Miu
Abstract: Following a scarcity of dollar funding available internationally to banks and financial institutions, starting in December 2007 the Federal Reserve established or expanded Temporary Reciprocal Currency Arrangements with fourteen foreign central banks. These central banks had the capacity to use these swap facilities to provide dollar liquidity to institutions in their jurisdictions. This paper presents the developments in the dollar swap facilities through the end of 2009. The facilities were a response to dollar funding shortages outside the United States during a period of market dysfunction. Formal research, as well as more descriptive accounts, suggests that the dollar swap lines among central banks were effective at reducing the dollar funding pressures abroad and stresses in money markets. The central bank dollar swap facilities are an important part of a toolbox for dealing with systemic liquidity disruptions.
Keywords: Central Bank; Dollar Swap Lines; Funding Costs; Liquidity; Financial Crisis
JEL Codes: E44; F36; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Availability of dollars (F31) | stabilization of dollar liquidity by U.S. banks (F33) |
| Access to dollar funding (F34) | varying borrowing rates across banks (G21) |
| Establishment and expansion of dollar swap lines by the Federal Reserve (F33) | reduction in dollar funding pressures abroad (F65) |
| Dollar swap lines (F33) | improvements in liquidity of the eurodollar market (F33) |
| Dollar swap lines (F33) | narrowing of spreads in the foreign exchange swap market (F31) |
| Dollar swap lines (F33) | reduction in LIBOR-OIS spread (F65) |
| Improvements in liquidity (G33) | alleviation of liquidity stress in foreign markets (F65) |