Six major central banks step in to rescue Switzerland's Credit Suisse from liquidity crisis, changing the currency swap agreement from weekly to daily.

The long-discussed Swiss Credit crisis has finally come to a conclusion with the intervention of the Swiss government, as the largest Swiss bank UBS took over the troubled institution for a price of 3 billion Swiss francs, approximately 32.4 billion US dollars, in a swift and historic transaction. In order to alleviate market liquidity crisis, six major central banks subsequently issued a joint statement to increase the frequency of US dollar swap agreements from weekly to daily, aiming to ease the global liquidity of the US dollar.

Why is it U.S. Dollar Liquidity?

Because multinational banks usually have U.S. dollar-denominated debts, but they have fewer opportunities to obtain U.S. dollar financing during financial stress due to their country's location. For example, Credit Suisse holds a significant amount of U.S. dollar-denominated debt and operates in up to 50 countries, involving a variety of currencies, attracting the attention of central banks around the world.

The U.S. Federal Reserve this time, along with the central banks of Switzerland, Canada, the UK, Japan, and the European Central Bank, jointly took action to increase the frequency of U.S. dollar swap agreements from weekly to daily to enhance the global liquidity of the U.S. dollar.

The statement indicates that this operation will commence on March 20 and will last at least until the end of April.

Examining Swap Agreements from Historical Data

The Federal Reserve typically provides such arrangements when there is a shortage of U.S. dollar liquidity. Historical data from previous records shows that the amounts of swap agreements surged abruptly during the 2008 financial crisis and the 2020 Covid pandemic. Although the statement does not mention the swap amount this time, the proactive arrangement of daily operations highlights the significance that major central banks attach to this matter.