Unwind of FRB support to Euro banking system

ZeroHedge caught this:

“Zero Hedge compiles an update of the Fed’s balance sheet every week, based on the most recent H.3 and H.4.1 statements. One odd trend that has caught our attention is the virtual disappearance of central bank liquidity swaps as disclosed in the weekly H.4.1 report. The historical low level for this metric was in the pre-Lehman days when it averaged about $60 billion weekly. Then in the depth of the crisis it peaked at just under $600 billion in December 2008. Yet, oddly, even though Europe’s economic and monetary situation has deteriorated since then, the foreign CB swaps have plunged, and are now almost at pre-Lehman levels: the most recent reading was of $100 billion, a half a trillion decline from the peak!”

The FRB was preventing total collapse of the European financial system; which was partly necessary because of AIG’s regulatory arb CDS that they’d sold to Eurozone banks.  ZH thinks that this unwind has been a factor in the weakening of the dollar.  We’ll see.

At least now Eurozone banks can fail without dragging down the Federal Reserve directly.


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