Fed to provide details on ’swap’ program to stem European debt crisis

By Jeannine Aversa Associated Press May 12th, 2010

Fed to give update on plan to ease Europe’s woes

WASHINGTON — The Federal Reserve said Tuesday that it will provide more details about its role in trying to help ease the financial crisis in Europe.

The information involves the Fed’s so-called currency “swap” arrangements with other central banks. The program — used during the 2008 global financial crisis — was revived Sunday.

Under the program, dollars are sent overseas in return for foreign currencies. In turn, participating central banks can lend the dollars out to banks in their home countries that are in need of dollar funding to prevent the European crisis from spreading further.

Starting Thursday, the Fed said it will provide weekly updates broken out by participating countries about the use of the program — such as the amount of dollars requested by individual central banks. The information will be posted on the Federal Reserve Bank of New York’s Web site.

As was the case during the 2008 financial crisis, the Fed will provide a total amount of dollars shipped under the program in a weekly snapshot of its balance sheet, released each Thursday.

The Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan are involved in the dollar swap effort.

The Fed’s decision to provide more information on the transactions comes as Congress has passed legislation that seeks to make the Fed more open and subject it to audits. The Fed’s role in bailing out Wall Street companies in 2008 has angered lawmakers and the American public.

Meanwhile, the Fed said it was posting on its Web site the contracts made with Bank of England, the European Central Bank and the Swiss National Bank. The agreements with the Bank of Canada and the Bank of Japan will be posted after they are finalized, the Fed said.

The debt crisis first erupted in Greece and there are fears that it could spread to Spain, Portugal and other eurozone countries. The crisis has pushed up demand for the U.S. dollar and has sharply weakened the value of the euro, the currency used by 16 European countries.

European banks need dollars to lend to companies across the Continent. European companies that have operations in the U.S. pay their employees in dollars and buy raw materials with the U.S. currency. Also, oil and other commodities are priced in dollars around the world.

The swap program, opened in 2007, was shut down in February as financial conditions in the United States and abroad had shown signs of improving.

Fed to provide details on ’swap’ program to stem European debt crisis