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Fed $US lending via its ‘unlimited’ swap lines are moving up through the highs.

The Dec 18 daily average was $642,233 million, up $14,203 million from week of Dec. 10. The week ending balance was $682,431.

For all practical purposes these are unsecured $US loans to foreign central banks, who ‘re-lend’ the funds to their member banks vs any ‘appropriate’ collateral, which includes bank paper, etc.

Bernanke stated these are all good loans because they are the obligations of the central banks.

Personally, I suspect if he tried to sell the $30 billion loan to the Bank of Mexico it would only sell at a substantial discount.

The lines are set to expire in April. It could easily turn out that none of it is collectible, as a practical matter, making this entire operation functionally a fiscal transfer.

The ECB recently announced it would cut itself off as of the end of January due to ‘lack of use’ by it’s member banks, who have
something over $300 billion outstanding.

I suspect the ECB may actually be trying to keep a lid on the euro.


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13 Responses

  1. Mr Mosler,
    I think the swap lines between the ECB and the US Fed may not the same swap operations that last week the ECB talked about terminating at the end of Jan 09.

    The ECB currently offers term US$ liquidity (US$ that has been provided from the Fed via a previous swap between central banks) 2 ways. 1 way is via a collateralized operation, and 2 is a swap of euros for dollars.

    On 15 October the ECB announced the swap facility:
    “Provision of US dollar liquidity through foreign exchange swaps:
    As from 21 October 2008, and at least until the end of January 2009, in parallel with the existing tenders in which the Eurosystem offers US dollar liquidity against ECB-eligible collateral, the Eurosystem will also offer US dollar liquidity through EUR/USD foreign exchange swaps. The EUR/USD foreign exchange swap tenders will be carried out at a fixed price (i.e. swap point) with full allotment. Further details on the tender procedures for EUR/USD foreign exchange swaps will be released shortly.”

    These “swap” type of transactions look like they never caught on (real Euros would have to be provided after all!), as most of the USD provided by the ECB ($100s of billions) have gone the “collateralized” auction route. For instance last week they did a 28-day where the collateralized operation had 47 bidders for $47.5 billion and the swap had one bidder for $70 million. So I think the ECB is just eliminating this liquidity swap vehicle because of “lack of interest”, but plans on providing US$ liquidity via collateralized auctions until at least the April 30 current expiration of the overall ECB to US Fed swap lines.

    I could be mis-reading this but I offer my observations.

    Resp,

  2. thanks, makes sense. appreciate the insight!

    let me know if you find out more on this.

    I’ll work it from this end as well.

  3. It seems to me that SOMEONE has to provide US$/EUR liquidity or euro banks that are now borrowing 100’s of billions from the ECB vs collateral have to PAY for those dollar assets bought on margin OR borrow dollars from SOEONE ELSE to keep financing the USD positions (cdo’s mbs,abs etc ).

    I think the 300 billion currency swap line IS being used by the ECB , if they discontinue the program, they will have to use their own dollar reserves, or sell EUR to buy dollars…as you say REAL EUROS WOULD HAVE TO BE PROVIDED AFTER ALL!

    The real question is do I set my shorts for April or July?

  4. I did a lot of digging on this last week myself, and came away confused. My impression is that Matt Franko is correct – ie it seems the ECB had been offering 1-day FX swaps which generated little interest, probably because of the hefty haircut (the ECB website lists all of their open market ops, including these and the fixed rate tenders of USD.

    Those fixed rate tenders are, of course, going gangbusters, as you point out, and for obvious reason: they have been offering dollars at a substantially lower rate that available in interbank markets. While I couldn’t find this published anywhere, I’ve been told the USD are being offered at OIS+100. Here’s an interesting question I’ve not been able to find the answer to: who determines that? If the ECB is allowed to set that interest rate, the Fed will have effectively handed them control over U.S. monetary policy to some degree (as the tenders are now of unlimited quantity, that quantity will be determined by the rate they set).

    As you point out, if the ECb is allowed to set this rate, they could conceivably decide to tweak it (higher) should they become uncomfortable with the rate at which, or level to which, the Euro was rising against the Dollar.

    Anyway, great post. I’m not sure why so few are talking about this subject, given that these fx swaps, along with the CPFF, account for the bulk of the Fed’s balance sheet expansion over the last six weeks or so.

  5. ECB did a 15-day USD auction Dec 23.
    ECB scheduled to do an 84-day Dec 30 (tomorrow)
    ECB current totals for USD$ operations:

    3 rolling 84-day auctions outstanding: $157.5B (67.5+70+20)
    28-day: $47.5B (most recent one Dec 16)
    15-day: $57.5 (Done Dec 23, instead of 7-day due to holidays)

    So they have increased (slightly) the term funding last week.

    Totals of all outstanding auctions (3 maturities):
    $212B as of Nov 18
    $224B as of Nov 20
    $236.5 as of Nov 28
    $294B as of Dec 2
    $267B as of Dec 10
    $262B as of Dec 16
    $246B as of Dec 17
    $257B as of Dec 23

    Link here: http://www.ecb.int/mopo/implement/omo/html/index.en.html

    Ill update this tomorrow with the results of the next 84-day collateralized op.

    Resp,

  6. Thanks, and just heard the daily average for last week was something like 618 billion, down about 30 billion from the previous week.

    Still very high, but not spiking. We’ll see what happens after year end, and as we approach April when the lines expire.

  7. ECB did a 83-day USD auction today, approx. $11B.
    Last op. until Jan 7, 09
    ECB current totals for USD$ operations:

    3 rolling 84-day auctions outstanding: $148.5B (11 + 67.5 + 70)
    28-day: $47.5B (most recent one Dec 16)
    15-day: $57.5 (instead of 7-day due to holidays)

    So they have decreased (slightly) the collateralized funding this week.

    Totals of all outstanding auctions (3 maturities):
    $212B as of Nov 18
    $224B as of Nov 20
    $236.5 as of Nov 28
    $294B as of Dec 2
    $267B as of Dec 10
    $262B as of Dec 16
    $246B as of Dec 17
    $257B as of Dec 23
    $254B as of Dec 30

    Link here: http://www.ecb.int/mopo/implement/omo/html/index.en.html

    Resp,

  8. thanks, looks like it’s settled into a range. must reflect most of the net dollar needs by the weaker banks.

    hopefully it doesn’t ratchet upwards and further complicate the new presidency.

  9. ECB did a 7-day USD auction today, approx. $41B @ 1.15%.

    ECB current totals for USD$ operations:

    3 rolling 84-day auctions outstanding: $148.5B (11 + 67.5 + 70)
    28-day: $47.5B (most recent one Dec 16)
    7-day: $41B

    So they have decreased (slightly) the collateralized funding this week.

    Totals of all outstanding auctions (3 maturities):
    $212B as of Nov 18
    $224B as of Nov 20
    $236.5 as of Nov 28
    $294B as of Dec 2
    $267B as of Dec 10
    $262B as of Dec 16
    $246B as of Dec 17
    $257B as of Dec 23
    $254B as of Dec 30
    $237B as of Jan 7

    Resp,

  10. Some observations wrt these forex swaps:

    1). On Dec 19 the Fed and other CBs put out coordinated press releases about the 1Q 2009 schedules for the longer term (28 & 84 day) collateralized USD operations.
    Link: http://www.federalreserve.gov/newsevents/press/monetary/20081219a.htm
    In the schedules, all CBs have identified 84 day operations that will take place at the end of March, maturing in June 09. So all interested now can assume full access to USD (collateralized) thru at least 1st half 09.
    I think this is a tacit authorization/extension of the forex swap program past the 30 April 09 expiration that has been previously publicized.
    From the BOE release: “The operations will be carried out as fixed rate tenders with full allotment. In the UK, there has been declining participation in the US dollar repo operations recently, as access to dollar liquidity in the market has improved. The Bank will continue to conduct dollar repo operations, including its weekly tenders, as long as necessary but will keep them under review if market conditions continue to improve. The provisional schedule for Bank of England term operations in 2009, including the four dditional operations in February and March, is set out in the table below. The Bank of England will continue to conduct its weekly fixed-rate US dollar repo operations until further notice.”
    This looks to me like all CBs (including the Fed) intend to keep this USD swap facility in place for as long as there is participation.

    2). At the end of October, the CBs of Brazil, Mexico, Korea, and Singapore were added the the list of CBs that had access to the Feds USD swap lines (perhaps unsettling).
    In the Feds report here:
    http://federalreserve.gov/releases/bulletin/1208assets.htm
    If you look at sub-note 4, it says “At end-November 2008 swaps outstanding were $506.818 billion: $264.113 billion with the European Central Bank, $20.851 billion with the Swiss National Bank, $54.295 billion with the Bank of England, $96.990 billion with the Bank of Japan, $21.620 billion with the Reserve Bank of Australia, $25 billion with the Bank of Sweden, $15 billion with the National Bank of Denmark, and $8.950 billion with the Bank of Norway.”
    This report is not timely as it is 5-6 weeks old, but it looks like the above 4 CBs did not draw anything thru end of November.

    Resp,

  11. good, thanks, and keep me posted if you see any updates.

    from the above, looks like the offerings currently end as of March
    but the loans don’t mature for about 3 mo after that.

    if that’s not changed those in need should all be participating in that last offering

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