The Federal Reserve today boosted to $247 billion its U.S. dollar-denominated swap lines with five foreign central banks in a bid to ease the credit crunch that is crippling lending in the U.S. currency, according to a Fed statement.
The measure was meant to address the continued elevated pressures in U.S. dollar short-term funding markets, the Fed statement said.
The Fed increased its existing swap lines with the European Central Bank by $55 billion to $110 billion total and with the Swiss National Bank by $15 billion to $27 billion total. The Fed also set up new swap arrangements of $60 billion with the Bank of Japan, $40 billion with the Bank of England, and $10 billion with the Bank of Canada.
The swap lines allow foreign central banks to meet demand for dollar borrowing that the private sector is reluctant to meet.
Data from the British Bankers Association showed that the London interbank offered rate, or Libor, fell to 3.84% following the Fed announcement, down from 5.03% Wednesday and down from a spike to 6.44% Tuesday.
Spreads between Libor and the 2% federal funds rate target were unusually high this week, due to Lehman Brothers Holdings bankruptcy and concern about Wall Street.