Thursday June 25, 10:15 PM
Fed extends swap deals with 13 central banks
By P. Parameswaran
WASHINGTON (AFP) - The US Federal Reserve said Thursday it was extending into 2010 dollar swap deals with 13 central banks following a review of liquidity programs aimed at promoting "financial stability."
The deals were clinched beginning last year as the Fed and other key central banks moved to boost lending and unblock the global credit squeeze following a financial crisis arising from a US home mortgage meltdown.
The extension of the dollar swap arrangements through February 1 applies to the 13 foreign central banks, the Fed said in a statement.
The extended deals were with the central banks of Australia, Brazil, Canada, Denmark, Britain, South Korea, Mexico, New Zealand, Norway, Singapore, Sweden, Switzerland and the European Central Bank.
In addition, the Fed said foreign currency swap arrangements with the Bank of England, the European Central Bank, and the Swiss National Bank would also be extended to February.
The Bank of Japan will consider extensions of the dollar liquidity swap and the foreign-currency liquidity swap arrangements with the Federal Reserve and will announce its decision following its next monetary policy meeting, the statement said.
The Fed said conditions in financial markets had improved in recent months "but market functioning in many areas remains impaired and seems likely to be strained for some time."
The currency swap deals as well as several other local liquidity programs were extended through early 2010 "to promote financial stability and support the flow of credit to households and businesses."
Among those programs whose term was extended was the so called Term Securities Lending Facility (TSLF) -- a lending program through the Fed that allows primary dealers or brokerages to borrow for short-term needs.
"By extending its lending facilities into next year, the Federal Reserve sent a strong message to financial markets Thursday that interest rates will remain unchanged for the foreseeable future," said Ryan Sweet, a senior economist with Moody's Economy.com.
The Fed's policy making panel decided on Wednesday that rates should be maintained at virtually zero percent to stimulate economic recovery from prolonged recession.
Fed chief Ben Bernanke had emphasized previously that sustained improvement in financial markets was key to self-sustaining economic recovery to take hold.
"It is not surprising that the Fed extended its lending facilities, as any disruption in financial markets would delay the recovery and drive the economy deeper into recession," Sweet said.
The Fed however maintained a December 31 deadline for the Term Asset-Backed Securities Loan Facility (TALF) to provide funding for asset-backed securities for auto, student and credit card loans, among others.
The initial program involved a total 200 billion dollars but could be expanded to as much as one trillion dollars, the Fed had said.
The US central bank also trimmed the size and changed the terms of some lending facilities, citing improvement in financial conditions and reduced usage of these programs.
Among those facing modifications were the Term Auction Facility (TAF) for banks, which was used to help increase liquidity in the US credit markets.
The Fed trimmed the size of upcoming TAF auctions, saying the amount of credit extended under that facility has been well below the offered amount.
It reduced the amounts auctioned at the biweekly auctions of TAF funds from 150 billion dollars to 125 billion dollars, effective with the auction to be held on July 13.
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