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Document Type

Case Study

Case Series

Central Bank Swap Lines

Abstract

The emergence of the COVID-19 pandemic during the first quarter of 2020 put strains on global US dollar funding markets. In response, on March 15, 2020, the Federal Reserve announced enhanced terms for its standing, uncapped dollar swap lines with five major central banks: the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, and Swiss National Bank. These enhancements lowered the interest rate on the lines by 25 basis points (bps) to the US overnight index swap (OIS) rate plus 25 bps and made available swaps of 84-day maturities in addition to the existing schedule of seven-day maturities. On March 19, 2020, the Fed established temporary, capped dollar swap lines with nine other central banks: the Banco Central do Brasil, Bank of Korea, Banco de Mexico, Danmarks Nationalbank, Monetary Authority of Singapore, Norges Bank, Reserve Bank of Australia, Reserve Bank of New Zealand, and Sveriges Riksbank. The temporary swap lines were capped between USD 30 billion and USD 60 billion, depending on the central bank. Together, these 14 central banks represented the same list of countries that received Fed swap lines during the Global Financial Crisis. Outstanding swap drawings on the Fed’s COVID-19 swap lines peaked during the week of May 27, 2020, at USD 449 billion, with the majority of borrowings made by the European Central Bank and Bank of Japan. The temporary swap lines were extended three times before ultimately expiring on December 31, 2021; peak usage for these temporary lines was under USD 50 billion.

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