FX Swap Lines and Dollar Funding Costs

1 Pages Posted: 17 Mar 2009

See all articles by Linda S. Goldberg

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Sergio Grittini

European Central Bank (ECB)

Jason Miu

Federal Reserve Banks - Federal Reserve Bank of New York

Darren Rose

affiliation not provided to SSRN

Date Written: March 16, 2009

Abstract

Following a scarcity of dollar funding available internationally to banks and financial institutions, through 2008 the Federal Reserve expanded or established Temporary Reciprocal Currency Arrangements (Swap Lines) with fourteen foreign central banks. These central banks would have the capacity to use funds accessed through the swaps to provide dollar liquidity to institutions in their constituencies. In this paper, we focus on the elements of the dollar funding shortages that arose in 2007 and continued into 2009. In particular, we detail the market forces that contributed to the changing availability of dollars, with some focus on disruptions associated with money market funds and interbank lending activity. We also detail the forces behind the demand for dollars by globally-oriented banks. The paper then turns to the contribution of foreign exchange swap lines among central banks to reducing dollar funding pressures and limiting stresses in money markets, using for this purpose an analysis of high frequency data on funding costs in different currencies and tenors.

Keywords: Temporary Reciprocal Currency Arrangement, swap, global bank, dollar, money markets

JEL Classification: F3,G2

Suggested Citation

Goldberg, Linda S. and Grittini, Sergio and Miu, Jason and Rose, Darren, FX Swap Lines and Dollar Funding Costs (March 16, 2009). Available at SSRN: https://ssrn.com/abstract=1361082 or http://dx.doi.org/10.2139/ssrn.1361082

Linda S. Goldberg (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-2836 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sergio Grittini

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jason Miu

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Darren Rose

affiliation not provided to SSRN

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