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BoC and Group of Central Banks Join Fed in New Liquidity Measures to Ease Banking Turmoil

Reuters | Stefania Spezzati, Oliver Hirt and John O'Donnell | Mar 19, 2023

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Move follows Swiss rescue of Credit Suisse and signals depth of concern over the global financial system

  • Some of the world’s largest central banks came together on Sunday to stop a banking crisis from spreading as Swiss authorities persuaded UBS Group AG to buy rival Credit Suisse Group AG in a historic deal.
  • UBS will pay 3 billion Swiss francs (US$3.23 billion) for 167-year-old Credit Suisse and assume up to US$5.4 billion in losses in a deal backed by a massive Swiss guarantee and expected to close by the end of 2023.
  • Soon after the announcement late on March 19, the U.S. Federal Reserve, the Bank of Canada, European Central Bank and other major central banks came out with statements to reassure markets that have been walloped by a banking crisis that started with the collapse of two regional U.S. banks earlier this month.  The Fed said it had joined with central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to enhance market liquidity.
    • The banks said they would start offering daily loans in dollars to their banks to avert stress in the funding market.
    • “To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily,” the central banks said in a joint statement.
    • The ECB vowed to support eurozone banks with loans if needed, adding the Swiss rescue of Credit Suisse was “instrumental” for restoring calm.

See:  US Government Closes Signature Bank and Moves to Stop Potential Banking Crisis

  • Problems remain in the U.S. banking sector, where bank stocks remained under pressure despite a move by several large banks to deposit US$30 billion into First Republic Bank, an institution rocked by the failures of Silicon Valley and Signature Bank.
    • On Sunday, S&P lowered First Republic Bank’s credit rating to B+ from BB+.

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