Commercial banks will have full-time access to liquidity support in five different foreign currencies, the Bank of England announced today.
Threadneedle Street said its existing temporary swap arrangements with its counterparts in the US, Japan, Europe, Canada and Switzerland will be made permanent, ensuring lenders will have ready access to a wide range of foreign currencies in times of market stress.
The move follows the Bank’s announcement last week that its sterling liquidity backstop for banks will be made more generous and comprehensive. It is likely to be interpreted as part of Governor Mark Carney’s promise to ensure the BoE is “open for business”. Carney’s predecessor, Lord King, was criticised in the 2007-09 crisis for being slow to provide liquidity support for struggling banks and for issuing warnings about the “moral hazard” of supporting commercial institutions that had made bad loans.
The Bank stressed the new arrangements would provide a “prudent” liquidity backstop for lenders.
Central banks around the world are extending their liquidity co-operation. In June Threadneedle Street opened up a £21bn swap line with the Bank of China to provide renminbi liquidity for UK banks, as part of an official effort to promote London as an offshore hub for Chinese currency trading. Earlier the European Central Bank signed a similar-sized currency agreement with Beijing.
