Federal Reserve to Bail Out European Banks (Again!)

Federal Reserve to Bail Out European Banks (Again!): Under the terms of the arrangement, the Fed and other central banks will deal with the European Central Bank, which will then disburse dollars to European commercial banks as it deems necessary. There is no cap on the amount of dollars that the Fed may provide to the ECB under the terms of the swap arrangment, which was first agreed to in principle in May 2010. An earlier swap facility, created by the Fed in 2007 in response to the global financial crisis, had expired in February 2010.

Christine Lagarde, managing director of the International Monetary Fund, applauded the upcoming currency swaps, telling CNBC that the action “shows they will do what it takes to maintain stability in the financial system.” John Ryding, a former economist for the Bank of England, also applauded next month’s launch as a sign that Europe’s finances were finally being brought under control. “They could open up the swap lines tomorrow if they wanted to,” Ryder told CNN. “By starting in almost a month's time, it looks like there's no clear present danger.”