Washington, US

After Sunday's merger agreement of Credit Suisse and UBS, the global central banks are setting off to cater to the credit flow challenges. Many central banks including Bank of England are now scrambling to boost the cash flow after growing concerns gripped US banking sector.  

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The US dollar liquidity "swap line" arrangement will kick off from Monday. As per US federal reserve, the swap lines are designed to improve liquidity conditions in dollar funding markets in the US and across the globe. With the help of swap line arrangement global central banks get the capacity to deliver US dollar funding to institutions in their jurisdictions, in times of market stress.

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Bank of England, Bank of Canada, Bank of Japan, US Federal Reserve, the European Central Bank, and Swiss National Bank initiated a joint action to ease strains. 

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The UBS-Credit Suisse merger deal was brought about after intervention of the Swiss bank. The official statement said that the deal was necessary for the survival of struggling Credit Suisse. The deal was finalized in accordance with the emergency ordinance issued by the Swiss Federal Council wherein the merger was implemented without approval of the shareholders. 

The announcement by the central banks is an "important backstop to ease strains in global funding markets." The move will reduce the affect on the supply of credit to households and businesses.

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British banks will have the option of borrowing directly from the Bank of England, which will borrow money from the US Federal Reserve, rather than the open market. The same will apply to banks in the US, Canada, Japan, Switzerland, and the Eurozone. This financing will be available to banks on daily basis.

This kind of arrangement was initiated earlier also at the time of 2008 financial crisis and the Covid pandemic. The swap line will continue "at least through the end of April", as per the Bank of England.

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Silicon Valley Bank collapse was the worst US banking collapse since 2008. US President Joe Biden gave assurances that US banking system is safe however, the SVB collapse cut open many vulnerabilities as the global banking stocks continued to tumble. 

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