By Simon Miller

The world’s leading central banks are to enhance their capacity to provide liquidity support to the global financial system.

The Banks of Canada, England, Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank have agreed co-ordinated action to lower the pricing on the existing temporary US dollar liquidity swap arrangements by 50 basis points – in effect the US dollar overnight index swap rate plus 50 basis points.

This pricing will be applied to all operations conducted from 5 December 2011 and the authorization of these swap arrangements has been extended to 1 February 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

In addition and as a contingency measure, these 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.

In a press release, the Bank of England noted: “At present, there is no need to offer liquidity in non-domestic currencies other than the US dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. The swap lines are available until 1 February 2013.”

The introduction of the network of temporary swap lines will enable the BoE to provide sterling to the other central banks if required, as well as enabling the Bank to provide liquidity, should it be needed, in Japanese yen, euro, Swiss francs and Canadian dollars (in addition to the existing operations in US dollars).

The Bank will continue its weekly tenders of US dollar funding at fixed interest rates each Wednesday until further notice, with counterparties able to borrow unlimited amounts against eligible collateral.

The rate at which tenders are conducted will be reduced to OIS+50bps (from OIS+100bps) beginning with the next weekly tender on 7 December. The three-month tender scheduled for 7 December and subsequent three-month tenders will also be conducted at OIS+50bps.

Further details can be found in the Market Notice.

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