Why Central Banks Are Helping Europe's Banks Get US Dollars

Cash

Central bankers across the globe acted today to end a growing dollar liquidity crunch for European banks by offering three-month dollar loans.

The European Central Bank effort is being launched in coordination with the Federal Reserve, The Bank of England, The Bank of Japan and the Swiss National bank.

Concerns over sovereign debt exposures have made it difficult for European banks to borrow in dollars. Prime money market funds and other traditional sources of dollar funding for European banks have cut back on their willingness to make short term loans to many European banks.

“The Governing Council of the European Central Bank has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year,” the European Central Bank said in a statement.

The central banks will offer dollar loans to financial institutions that need to fund dollar obligations. The hope is that the new programs will be enough to avert a liquidity crisis.

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