The Fed and different central banks arrange a joint liquidity operation

Federal Reserve Building, Washington DC

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The US Federal Reserve worked with other global central banks to ensure dollars are available to contain any liquidity problems in the global financial system.

The Fed said Sunday it had joined with the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank in coordinated action to limit the provision of liquidity by existing U.S. dollar Improve swap line arrangements.

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In this way, monetary authorities said, the move would “serve as an important liquidity backstop to ease tensions in global funding markets, thereby helping to mitigate the impact of such tensions on household and corporate credit supplies.”

The move came on the same day that UBS announced it would buy Credit Suisse to allay concerns about the global financial system. Swiss authorities brokered the deal to prevent a disorderly collapse of the bank, and concerns are mounting over financial turmoil on both sides of the Atlantic.

“To improve the effectiveness of swap lines in providing US dollar funding, central banks currently offering US dollar operations have agreed to increase the frequency of seven-day operations from weekly to daily,” the Fed said in a statement released along with announcements from the other five central banks.

The operation will begin on Monday and will continue until at least the end of April, the Fed said.

The move comes just days before the Fed’s two-day meeting, after which it will announce its interest rate intentions. As of Sunday night, markets have priced in a roughly 74% chance of a quarter-point rate hike on Wednesday, according to CME Group’s FedWatch gauge.

The UBS-Credit Suisse deal and swap line maneuver likely increase the chance of a rate hike, said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.

“The implications for the Fed on Wednesday are far from clear-cut. In principle, the interventions pave the way for a cautious 11pm-10pm rate hike, still our base case a severe negative reaction from European financials to the news that this could prevent a hike,” Guha said in a note to clients.

—Reuters contributed to this report.

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