The European Central Bank (ECB) announced "coordinated central bank action to address pressures in global money markets". The move follows the announcement of joint USD liquidity operations announced by the bank in mid-September. As part of the action, the central banks involved (Canada, UK, Japan, EU, US, Swiss) will lower the interest rate on US dollar liquidity provision arrangements by 50 basis points, with the new rate being the US dollar Overnight Index Swap (OIS) rate plus 50 basis points. The banks also agreed to swap arrangements which would ensure liquidity through to the 1st of February 2013. The moves are designed to counter the tightening up of credit markets and liquidity in the European banking system.
Following is the full text of the main part of the announcement:
"The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.
These central banks have agreed to lower the pricing on the existing temporary US dollar liquidity swap arrangements by 50 basis points so that the new rate will be the US dollar Overnight Index Swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from 5 December 2011. The authorisation of these swap arrangements has been extended to 1 February 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the US dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. These swap lines are authorised through 1 February 2013."
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