If six different central banks coordinate a big liquidity operation, you end up with six different press releases, from the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank, and the Federal Reserve.

All of them start the same way, talking about how they’re coordinating action, cutting the interest rate on their liquidity operations by 50bp, and agreeing to provide such operations in each others’ currencies, in future, should that become necessary. Think of it as a holiday greetings card from the banks to the market.

And then, underneath the “happy holidays” boilerplate, each individual central bank adds a little personalized note about itself. Here’s how the ECB describes what it’s going to do:

The ECB will regularly conduct US dollar liquidity-providing operations with a maturity of approximately one week and three months at the new pricing…

In addition, the initial margin for three-month US dollar operations will be reduced from currently 20% to 12%.

This isn’t some kind of hypothetical facility, it’s a very real injection of cheap liquidity into the European markets, and it is desperately needed.

Across the Channel in London, the Bank of England is saying essentially the same thing: the window’s open, fill yer boots!

The Bank will continue its weekly tenders of U.S. dollar funding at fixed interest rates each Wednesday until further notice, with counterparties able to borrow unlimited amounts against eligible collateral.

In Switzerland the SNB is a little more subdued, but in substance identical:

The SNB intends to continue conducting US dollar liquidity-providing repo operations at terms of one week and three months.

The other three central banks, by contrast, all fall over themselves to say that they’re just being good global citizens, here, and don’t really face any liquidity pressures at home. Yet. Here’s Japan:

Financial conditions in Japan have continued to ease and Japanese financial institutions do not face difficulty with funding in foreign currencies. There is, however, a possibility that Japan will be adversely affected, should conditions in global financial markets deteriorate further.

And here’s Canada, which goes further still and says that actually, its window is not open right now, but it might open it in future, should it be so inclined.

The Bank of Canada judges that it is not necessary for it to draw or offer operations on any of these swap facilities at this time, but that it is prudent to have these agreements in place. Should these facilities be drawn on, the details of the liquidity facilities provided would depend on the specific market circumstances at the time.

Finally, we have the Fed.

U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.

The way I read this, the Fed is not actually going to be providing liquidity to the market at the new rates. Europe might be facing a liquidity crunch right now, but the US isn’t, and so the Fed is keeping this particular bazooka in its closet for such a time as it becomes necessary to bring it out.

The difference between the ECB and the Fed is, I think, instructive. The Fed has always been willing to provide liquidity to the markets in extremis, and partly as a result banks have up until now been happy to lend to each other. The ECB’s status as lender of last resort is much more dubious, however, and so it needs to come out and actually do these things if the market’s going to believe that they’re real.

Needless to say, this is not a healthy state of affairs. Here’s how that Exane BNP Paribas note on liquidity explains it:


Today’s announcement strengthens and widens the liquidity channels from the central bank to individual commercial banks; it can’t in and of itself get those banks lending to each other again. And we won’t be out of the woods, in Europe, unless and until that happens.