Central banks extend swap arrangements

A number of the world's leading central banks have agreed to extend the deadline on their US dollar and bilateral swap lines that were due to expire early next year.

The Bank of Canada, the Bank of England, the European Central Bank (ECB), the Swiss National Bank (SNB) and the US Federal Reserve all extended swap agreements that were due to expire on February 1, 2013, by another year, to February 1, 2014. The Bank of Japan will decide whether or not to extend its deadline at its next monetary policy meeting, on December 19.

The swap agreements allow the central banks to provide liquidity in each jurisdiction in each of the currencies, "should market conditions so warrant".

Despite this, not all the central banks take advantage of the agreements. The Bank of Canada said it "continues to judge that it is not necessary for it to draw or offer operations on any of these swap facilities at this time, but that it is prudent to maintain these agreements in place". Similarly, while the SNB provides US dollar liquidity at maturities of one week and three months, the central bank said there had so far been no need to take advantage of the other bilateral swap lines.

Like the SNB, the ECB currently conducts regular US dollar liquidity-providing operations with maturities of one week and three months, using repo transactions against eligible collateral. The Bank of England conducts weekly seven-day and monthly 84-day tenders of US dollar funding.

The bilateral swap lines were first implemented in November 2011 alongside an agreement to cut the rate on US dollar liquidity swaps by 50 basis points, in order to provide emergency liquidity support to financial markets should the need arise. The aim was to ease strains in financial markets, thereby increasing the supply of credit to households and businesses.