The U.S. Federal Reserve today unveiled a series of coordinated measures with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank designed to ease money market pressures.

The Bank of Canada and the Fed have agreed on a US$10 billion swap facility (reciprocal currency arrangement) to be accessed, should the need arise, to provide U.S.-dollar liquidity in Canada. If drawn on by the Bank of Canada, the swap would provide liquidity facilities for use by financial institutions in Canada.

The deal with the Bank of Canada is part of coordinated measures that sees the Fed also creating new swap facilities with the Bank of Japan and the Bank of England. The Fed is also boosting its existing swap arrangements with other central banks raising the size of the facility with the ECB to US$110 billion, an increase of US$55 billion, and up to US$27 billion by the Swiss National Bank, an increase of US$15 billion.

The moves are designed to address the continued elevated pressures in U.S. dollar short-term funding markets, they said. “These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets,” they said.

“This agreement provides the Bank of Canada with additional flexibility to address rapidly evolving developments in financial markets,” the Bank of Canada said, adding that it is not necessary for it to draw on this swap facility right now, “but that it is prudent to have the agreement in place.”

If the swap is drawn on, the details of the liquidity facilities provided would depend on the specific market circumstances at the time. This facility expires on Jan. 30, 2009.

The Bank of Canada added that it “continues to closely monitor global market developments and remains committed to providing liquidity as required to support the stability of the Canadian financial system and the functioning of financial markets.”

IE