Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Having reached the limit of the dollars it could provide directly to Europe’s tottering banks, the Fed now lent to the ECB, the Bank of England, the National Bank of Switzerland and the central banks of Scandinavia. They then channeled the precious dollar liquidity to the European megabanks at one remove.20 The Fed and the central banks it was supporting agreed on an exchange rate. The European central bank needing the dollars deposited the required amount of local currency in an account in the name of the Fed. The Fed credited the European central bank with the equivalent amount in dollars. The two sides agreed to reverse the trade at a future date at the agreed exchange rate. The terms were spelled out with a minimum of fuss in a contract running to no more than seven pages.21 The Fed received an interest premium that ensured that the swap lines would be used only if market funding was not available. The European central banks passed that cost on to the banks that were the ultimate recipients of the dollars.