The Fed and other central banks are trying to avert the crisis by increasing the flow of dollars

London (CNN) The U.S. Federal Reserve and several other major central banks announced on Sunday night a coordinated effort to boost the flow of U.S. dollars through the global financial system with the aim of keeping credit flowing to households and businesses.

“The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing a coordinated action to increase the supply of liquidity via the standing US dollar liquidity swap line arrangements,” the central banks said in a joint statement.

Sunday’s statement came just hours after Swiss authorities orchestrated an emergency takeover of Credit Suisse by UBS. Credit Suisse – one of the 30 most important banks in the global financial system – was bleeding money last week after investor and customer confidence collapsed.

Market turmoil sparked by the second- and third-largest bank failures in US history earlier this month threatens to make it harder for people to borrow money, US Treasury Secretary Janet Yellen said last week.

“If banks are under stress, they may be reluctant to lend,” Yellen said Thursday in testimony to the Senate Finance Committee. “We could see credit becoming more expensive and less available.”

Christine Lagarde, president of the European Central Bank (ECB), told reporters on Thursday that “persistently elevated market tensions” could further tighten credit conditions that were already tightening in response to rising interest rates.

Swap lines are agreements between two central banks to exchange currencies. They allow a central bank to obtain foreign currency from the central bank that issues it and distribute it to commercial banks in their country.

The swap line between the US Federal Reserve and the ECB makes e.g. The ECB able to receive US dollars in exchange for an equivalent amount in euros. The ECB can then distribute these dollars to commercial banks in the 20 countries that use the euro.

According to the ECB, the agreements can be an important tool for maintaining financial stability and preventing market tensions from affecting the economy. During the 2008 global financial crisis following the collapse of Lehman Brothers, financial markets dried up due to extreme risk appetite. Under these circumstances, it became difficult for banks in the euro area to obtain US dollars.

From Monday until at least the end of April, the Fed and other central banks will make dollars available on a daily basis instead of weekly.

“The network of swap lines among these central banks is a set of available standing facilities and acts as an important liquidity backstop to ease the strain on global financial markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.” they added.

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