Central Banks Boost Cash Flow to Stabilize Global Financial System Amid Banking Failures, Rescues
Date
3/20/2023 8:42:53 AM
(MENAFN) Six major central banks, including the bank of England, have announced a coordinated effort to boost the flow of US dollars and keep credit flowing in the global financial system. This move comes after the collapses of two US banks, Silicon Valley Bank and Signature Bank, as well as the state-backed rescue of Switzerland's Credit Suisse, which sent shockwaves across global markets. The central banks emphasized that the global banking system is safe, but concerns remain about the potential for other lenders to get into trouble after recent interest rate rises left some with significant losses.
The coordinated effort by the Bank of England, Bank of Japan, Bank of Canada, European Central Bank, US Federal Reserve, and Swiss National Bank will allow banks in these countries to access funding directly from their respective central banks instead of borrowing on the open market. The US dollar cash flow arrangement will run from Monday until at least the end of April, and banks will be able to access this funding on a daily basis. The move serves as an "important backstop to ease strains in global funding markets" and lessen the impact on the supply of credit to households and businesses.
This is not the first time such measures have been taken. Similar actions were taken during the 2008 financial crisis and at the height of the Covid pandemic. The current situation has raised concerns about runs on other banks, and the central banks' coordinated effort is aimed at preventing such a scenario. The recent failures and rescues of banks have caused stock markets to fall sharply, and they remained under pressure on Monday despite the rescue of Credit Suisse.
The central banks' efforts to keep cash flowing through the financial system are aimed at stabilizing the global economy and preventing a repeat of the 2008 financial crisis. By allowing banks to access funding directly from central banks, they can avoid the potential for runs and liquidity problems that could cause a domino effect across the financial system. The move is a reminder that the stability of the global financial system remains a key concern for policymakers, and that measures must be taken to ensure its resilience in the face of unexpected shocks.
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