Fed extends $loan program

The Federal Reserve extended life a program while started to tap the financial crisis, the foreign central banks, the needed dollars USA. The move came as new financial burdens in Europe.

Foreign banks borrow dollars to finance holdings of U.S. securities or to finance projects often companies in the U.S. currency. This is harder to borrow become partly due to uncertainty about the health of European banks and tax stress across the continent.

The Fed said on Tuesday will it renew its agreements with the European Central Bank until August 2011 - as the central banks of the England to borrow Canada, Japan Switzerland $ if necessary. The agreements had in January run has been set. The fed at its Dec. 14 meeting decided, and it announced Tuesday with other central banks.

"Especially in view of the sovereign debt situation in Europe, premature, these arrangements expire, was to allow," said Dana Saporta, Economist at Credit Suisse.

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European Heads of State and Government failed to resolve disagreements about how a debt crisis to suppress, has plagued the eurozone from 16 country for more than a year. Signs of stress, short-term dollar markets, have returned financing, although you less difficult than in spring. Concerns about European government bonds go yet, no way. In a sign of stress financial institutions need $ in thin trade at the end of an unusually large 0.55% premium European who paid euro in US dollars for three months, up from less than 0.30 two months ago swap.

The Fed began loans in dollars to foreign central banks in the middle of a scramble for dollars in Europe during the worst of the global financial crisis in 2008. End of December 2008, the Fed loan dollars to foreign central banks - known as swaps - 545 billion was $, about a quarter of all credit the fed to put in the economy. One of four dollars, which the Fed loaned and didn't want French banks BNP Paribas SA or Germany to bear Stearns or Bank of America Corp. but - by foreign central banks - Commerzbank.

After it expires you, the Fed renewed it in may "the re-emergence tribes in short-term funding markets in Europe to react to." Use of the program was recently sparse but bankers describe it as an important backstop. The Fed had only 60 million US dollars in SWAps with foreign central banks of 15 Dec., the outstanding.

European financial institutions were need at the end of US dollars in thin trade forced to pay an unusually large premium swap EUR in USD for three months. These premium reflects levels not seen since May.

Under the program fed gives the American Federal Reserve, for a fee, $ to foreign central banks that lend you locally to commercial banks. Because the foreign central banks are responsible if the loans are repaid, the Fed keeps the program be low risk.

Fed loans to foreign central banks occasionally draws criticism from Capitol Hill. The Fed reveals the details of its swaps with various central banks.

Tuesday's announcement comes days after the Bank of England the ECB with a £ 10 billion agreed (15.5 billion$)-swap line in Sterling, a step of market participants attributed to problems faced by Irish banks on sterling. Irish banks are already the largest single group of borrowers of the ECB. The ECB had called "preventive action".

-Geoffrey t. Smith contributed to this article.

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