Central banks take actions to maintain the flow of currencies

• The Bank of England was one of six central banks that declared they would increase the flow.
• It follows the state-backed bailout agreement in which UBS acquired Credit Suisse.
• Silicon Valley Bank and Signature Bank fell in the US this week, stock markets have plummeted

With the bankruptcy of two American banks and the saving of Credit Suisse, central banks have hurried to keep money moving through the world’s financial institutions.

The Bank of England was one of six central banks that declared they would increase the flow of US dollars starting on Monday.

Similar actions were last implemented at the height of the Covid epidemic and the 2008 financial crisis. It follows the state-backed bailout agreement in which UBS acquired Credit Suisse.

Since Silicon Valley Bank and Signature Bank fell in the US this week, stock markets have plummeted precipitously, raising concerns about bank runs.

After this weekend’s bailout of Switzerland’s second-largest lender, they were still under pressure on Monday.

Although central banks have emphasized that the global banking system is secure, there are worries that other lenders may run into difficulties after certain lenders were left holding significant losses as a result of recent interest rate increases.

The European Central Bank, Bank of Canada, Bank of England, US Federal Reserve, Swiss National Bank, and Bank of Japan said in a statement that they have started the concerted operation to maintain credit flow.

The measure, according to the central banks, “acted as an important backup to reduce strains in global funding markets” and to have a less significant effect on the availability of credit to individuals and enterprises.

British banks will have the option of borrowing directly from the Bank of England, which will borrow money from the US Federal Reserve, rather than the open market.

The same will apply to banks in the US, Canada, Japan, Switzerland, and the Eurozone. This financing will be available to banks every day.

According to the Bank of England, the US dollar cash flow arrangement will last from Monday through at least the end of April.

How concerned should I be if there is a banking crisis?

With the fall of Silicon Valley Bank, global banking stocks fell, despite President Joseph Biden’s assurances that the US will take “whatever measures are necessary” to safeguard the financial system.

Two further medium-sized American lenders have also experienced problems, with Signature Bank folding and the First Republic needing a $30 billion (£24.8 billion) financial infusion to strengthen its finances.

The US Federal Deposit Insurance Corporation (FDIC) announced on Sunday that Flagstar Bank, a division of New York Community Bancorp, has agreed to purchase the assets of Signature.

The agreement covers practically all of the deposits, some of the loans, and all 40 of the former branches of Signature Bank.

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