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Fed inks swap deals with 4 other banks

THE United States Federal Reserve has expanded credit lines with the central banks of Japan, Switzerland, the United Kingdom and European Union that will provide foreign currency to US banks - if needed.

Under currency swap arrangements the Fed provides dollars in exchange for reserves of the other nations' currencies. The Fed has entered into or expanded 14 such agreements since the credit crisis intensified last year, including with the four central banks in Monday's announcement.

The new measures provide a reciprocal arrangement: the Fed can now draw on overseas currencies in exchange for dollars.

"Should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap agreements with the relevant central banks," according to the Fed release. "Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets."

Lou Crandall, chief economist at Wrightson ICAP, a research firm, said the move was mostly precautionary and enables the Fed to provide short-term, emergency credit in foreign currency for US banks that need such currencies to meet overseas obligations.

The arrangement also would enable US banks doing business abroad to obtain foreign currency during domestic bank holidays, when overseas banking markets are operating.


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