European Central Bank announces coordinated central bank action to combat pressure in global money markets

The European Central Bank (ECB) will join forces with central banks around the world to improve liquidity in global financial markets. “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,” reads the statement. The announcement comes at a crucial moment, when the European Financial Stability Facility (EFSF) is trying to find funding for the possible need to bailout more eurozone economies.

The ECB will introduce coordinated new measures with the Bank of Canada, the Bank of England, the Bank of Japan, the Federal Reserve and the Swiss National Bank. According to the statement, the banks will lower the pricing on temporary US dollar liquidity swap arrangements, effective from December 5. And, in what the statement refers to as a contingency measure, the 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.” The banks have also agreed temporary reciprocal swap lines. This will allow provision of euros to the central banks involved and the Eurosystem to provide liquidity in the in Japanese yen, sterling, Swiss francs and Canadian dollars, as well as US dollars. The ECB and the central banks have also agreed to cut the initial margin for three-month US dollar operations from 20 percent to 12 percent. See the full ECB statement here. Liam Lever, liam@romania-insider.com