WASHINGTON—The federal bank regulatory agencies has added yet another tool aimed at providing liquidity to the markets. Separately, the Fed has also announced temporary U.S. dollar liquidity arrangements with more countries.
The regulatory agencies have approved an interim final rule to ensure that financial institutions will be able to effectively use a liquidity facility recently launched by the Federal Reserve Board.
In response to the coronavirus outbreak, the Fed has most recently introduced a Money Market Mutual Fund Liquidity Facility, or MMLF, which is designed to enhance the liquidity and functioning of money markets and to support the economy.
The interim final rule modifies the agencies’ capital rules so that financial institutions receive credit for the low risk of their MMLF activities, reflecting the fact that institutions would be taking no credit or market risk in association with such activities. The change only applies to activities with the MMLF, the agencies noted.
Swap Lines
Meanwhile, the Federal Reserve has also announced the establishment of temporary U.S. dollar liquidity arrangements (swap lines) with the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden).
These facilities, like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad, the Fed said.
According to the Fed, these new facilities will support the provision of U.S. dollar liquidity in amounts up to $60 billion each for the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank and $30 billion each for the Danmarks Nationalbank, the Norges Bank, and the Reserve Bank of New Zealand. These U.S. dollar liquidity arrangements will be in place for at least six months.
The Federal Reserve noted it also has standing U.S. dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.
$10 Billion in MBS Purchased
In New York, the Federal Reserve Bank said its Open Market Trading Desk will conduct an additional $10 billion in purchases of mortgage-backed securities across two separate operations, for settlement on March 23, 2020 (T+2). These purchases are designed to support the smooth functioning of the agency MBS market, the New York Fed said.
“The Desk stands ready to conduct more purchase operations for March settlement in the coming days should this be appropriate to promote smooth market functioning,” the New York Fed said.