by Richard Barley
Wall Street Journal
November 30, 2011
It's not the bazooka the market was looking for, but coordinated action by six central banks to provide cheaper access to U.S. dollar funding is a significant response to the crisis. It should help to reduce pressure for banks to sell assets, helping to head off a growing credit crunch within the euro zone that had started to take its toll on the global economy.
But while the action triggered a broad market rally, it also reflects the severity of the crisis and adds to pressure on European policy makers to take decisive action.
The U.S. Federal Reserve, the European Central Bank, the Bank of Japan, Bank of England, Bank of Canada and the Swiss National Bank agreed Wednesday to cut the cost of borrowing U.S. dollars under swap lines by 0.5 percentage point. European banks have been struggling to get hold of dollars as U.S. money-market funds have cut lending and the cost of swapping euro loans for dollar loans had reached levels not seen since the collapse of Lehman Brothers.
The easier terms—the rate for an 84-day dollar loan from the ECB has more than halved, RBS calculates—should make banks more willing to borrow dollars from central banks; if many banks use them, there will be less stigma attached. The central banks also agreed to temporary bilateral swaps to offer liquidity in each of their currencies, while insisting this was precautionary: There was no demand for such facilities yet.