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Fed Opens New FX Swap Line With Bank Of Japan; Second After ECB

Tyler Durden's picture




 

Today, for the first time in months, the New York Fed disclosed that in addition to its outstanding $1.9 billion in swap lines with the ECB, it had opened for the first time since the swap line reopening, two new USD liquidity lines with the Bank of Japan, a 7 day and an 83 day one, for 1.1%, or just modestly more than what the 7 Day Drawn line with the ECB costs. The combined is for $102 million which brings up two questions: how much longer will the BBA pretend its LIBOR quotations are even remotely useful: after all today, according to the daily bank matrix, the most expensive 3 Month unsecured USD loan in the interbank market was 0.575% (courtesy of Credit Agricole). Yet the BOJ had to borrow from the 100x levered FRBNY at double that? Amusing. And also, just what the hell is the BOJ doing: after all in the past week the bank supposedly bought over $200 billion worth of dollars (and sold Yen) in order to weaken its currency. Where did all this money go if the bank was forced to serve as a conduit for a meager $102 million. We are sure the explanations will be fast and furious, and none of them will be right.

 

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Thu, 11/10/2011 - 21:43 | 1868515 Belrev
Belrev's picture

I don't understand why would any central bank even go into fx swap with other central bank to help their own country's financial institutions. They can just print local currency, buy fx and lend it to their own. Who can explain?

Thu, 11/10/2011 - 21:56 | 1868546 Sigma X
Sigma X's picture

Because they cant print dollars and they need them for loans they fund.  Unfortunately, as the primary source of these dollar loans dry up (primarily due to counterparty risk, collateral restrictions or an overall tightness in the repo world) theres no place to turn for their funding needs other than the Fed.  The fact that these banks dont have access to said markets is evident by the premium they pay over the corresponding LIBOR rate for the same term.

Thu, 11/10/2011 - 22:06 | 1868567 I think I need ...
I think I need to buy a gun's picture

SHITTER WAS FULL!!!!!!

Thu, 11/10/2011 - 22:43 | 1868629 Freebird
Freebird's picture

Smoke & mirrors

Fri, 11/11/2011 - 00:10 | 1868897 disabledvet
disabledvet's picture

basically the ability of the governments of Japan and "Europe" to fund their own needs has been tapped out and Uncle Sugar has to finance them now. Think USA circa the 1950's. HOWEVER! It's far bigger than that. In those decades we were financing rebuilding efforts for Japan and Europe. This time I would argue you have not only the bulk of Japanese industry but the bulk of Japan itself migrating to the USA (Fukushima and the "radioactive steam" event)...and something...similar but not identical happening in Europe (total collapse of their trading bloc leading true price wars of finished goods never before seen in human history...like say brand new S-Class Mercedes for 10 grand). In short you'd better be an owner of dollar denominated debt because all the rest of it could be worthless in a week.

Fri, 11/11/2011 - 00:19 | 1868924 piceridu
piceridu's picture

Also FED Swap lines are used to continually weaken USD

Fri, 11/11/2011 - 08:18 | 1869323 MarketTruth
MarketTruth's picture

WAIT!!!  You mean to tell me the USA is a currency manipulator? Color me SHOCKED, shocked i tell you!!!

<sarc>

Thu, 11/10/2011 - 21:44 | 1868518 maxw3st
maxw3st's picture

What did happen to those billions of dollars?

Thu, 11/10/2011 - 22:24 | 1868599 smlbizman
smlbizman's picture

i bet they put it in the "lockbox"

Thu, 11/10/2011 - 21:46 | 1868521 chump666
chump666's picture

Almost forgot about Asia's liquidity squeeze.

Thu, 11/10/2011 - 21:47 | 1868524 slewie the pi-rat
slewie the pi-rat's picture

i think they are trapped up a box canyon

they're gonna hafta shoot their way out

Thu, 11/10/2011 - 21:47 | 1868525 earleflorida
earleflorida's picture

wow! this is strange,...

thanks tyler

Thu, 11/10/2011 - 21:50 | 1868533 bob_dabolina
bob_dabolina's picture

Normal

Thu, 11/10/2011 - 21:55 | 1868538 mynhair
mynhair's picture

Crap, I applied for a line 2 months ago.   Where's mine?

Cleaned the mirror and everything....even stole a new straw!

Thu, 11/10/2011 - 21:55 | 1868544 Ecoman11
Ecoman11's picture

Account sweeping.

Thu, 11/10/2011 - 21:57 | 1868548 DeadFred
DeadFred's picture

Maybe they used part of it to buy Italian bonds this morning

Thu, 11/10/2011 - 21:58 | 1868553 mynhair
mynhair's picture

1)  Borrow $$$

2) Sell Yen

3) ....

4) Not #winning

Thu, 11/10/2011 - 22:08 | 1868573 phungus_mungus
phungus_mungus's picture

I'm longing can goods and shotguns!

Thu, 11/10/2011 - 22:21 | 1868595 mynhair
mynhair's picture

USDHUF --> 234 buys a lot of spam.

Hmmmm, 234, where have I heard that before?

Thu, 11/10/2011 - 22:11 | 1868582 kito
kito's picture

is this like swapping spit?

Thu, 11/10/2011 - 22:19 | 1868594 Caviar Emptor
Caviar Emptor's picture

Fx swap lines are needed to keep the Ponzi dream alive. The stress on the system isn't all coming from Euro banks and weak sovs, it's also coming from a slowing global economy that can't support bubble credit and prices (China? You listening?)

Thu, 11/10/2011 - 22:23 | 1868596 DormRoom
DormRoom's picture

the EUR-USD  & USD-JPY are false signals.  Have been for a while.

 

Fed opens line so banks dont' need to go to currency markets.  Banks can get juiced by their directly from central banks. EUR & JPY should be a lot lower, since the USD should be a lot stronger, given the global uncertainty.  But since algos are hardwired to monitor currency exchange rates (global markets tank, if USD rises), Feds wants to make sure, there is no ghost in the machine moment.

Thu, 11/10/2011 - 22:24 | 1868601 chump666
chump666's picture

So an Asian liquidity squeeze is kicking in overtime. Last few weeks FX swaps between Japan/sth Korea/Taiwan/China and now the Fed.  means?  Asia is slowing down hard.  C'mon momo traders, sell your rallies, here is the equation EZ + China x liquidity crunch = FUBAR

Thu, 11/10/2011 - 22:32 | 1868610 Cplus
Cplus's picture

In the past Japan's financial institutions derived dollar funding from the trade surplus. This fiscal year it is likely that there will be a trade deficit as a consequence of the spring disasters and other factors.. 

It is a new development for Japan's financial institutions without access to cheap dollar funding from the domestic trade surplus or foreign banks to call on the Central Bank for this purpose.

So this facility is just being pilot tested. The BOJ's intervention $ are sitting in Treasuries at the Fed for the time being and could easily be used for this in the future depending on a number of factors.

Thu, 11/10/2011 - 22:51 | 1868657 Freebird
Freebird's picture

Exactly, & those Nips were the largest buyers of USTs this week. Round & round we go...smoke & mirrors

Thu, 11/10/2011 - 23:17 | 1868751 Caviar Emptor
Caviar Emptor's picture

Nomura. The Soc Gen of Japan

Thu, 11/10/2011 - 22:38 | 1868621 Eireann go Brach
Eireann go Brach's picture

Once again, I am absolutely fucking shocked that Bernanke or a Wall St CEO like Blankballs have not been beaten in public with a bat!

Fri, 11/11/2011 - 00:24 | 1868938 piceridu
piceridu's picture

99.9999999999999999999999999% of the population aren't aware or awake. Next time you walk into your bank, grab all the tellers and bank manager and ask them where the money they loan comes from.

Thu, 11/10/2011 - 22:42 | 1868627 Coldfire
Coldfire's picture

Just imagine what the Fed isn't disclosing. And that's all you can do, just imagine, because information about what they do with our money and in our name is secret. The Fed's conspiracy with its primary stealers is a continuing criminal enterprise writ large. End the Fed.

Thu, 11/10/2011 - 22:45 | 1868638 midgetrannyporn
midgetrannyporn's picture

The BOJ dropped a ton of yen on Uncle Mo last weekend at Churchill Downs. LMAO!

Thu, 11/10/2011 - 23:14 | 1868728 Mine Is Bigger
Mine Is Bigger's picture

Thank you Cplus.  You answered my question even before I ask.

Thu, 11/10/2011 - 23:32 | 1868806 catch edge ghost
catch edge ghost's picture

This reminds me, I have the solution to the bank problem. Let me grab that napikin...

Step 1: All bank ownership is reorganized as a daisy-chain of subsidiaries. At the top would be a special sort of Holding Company, it would own JPM maybe, who would own Citi who would own BofA who would own Wells etc. Someone can figurre out the best order to net the maximum accounting benefit from the consolidated returns.

Step 2: Each subsidiary borrows only from its immediate parent or from the Holding Company.

With enough subsidiaries and accounting, it would take several quarters if not years for losses to escape or percolate up to the ultimate parent. Same for taxes, decades could pass before anything but profits are realized. 

Share prices in each subsidiary would rocket creating a feedback loop on all of their balance sheets.  Within a year the market cap of the weakest link would easliy exceed 9000.

Thu, 11/10/2011 - 23:35 | 1868813 Outlaw Of The W...
Outlaw Of The Wasteland's picture

what EXACTLY is a "dollar" again?

Thu, 11/10/2011 - 23:46 | 1868842 Freebird
Freebird's picture

About one 1750th of a troy ounce

Thu, 11/10/2011 - 23:47 | 1868847 Freebird
Freebird's picture

About one 1750th of a troy ounce

Fri, 11/11/2011 - 00:05 | 1868889 dr.charlemagne
dr.charlemagne's picture

no, its 1/55,000th of a troy ounce. It just hasn't quite found its equilibrium yet.

Thu, 11/10/2011 - 23:57 | 1868869 anonnn
anonnn's picture

Is the action so  misunderstood that the obvious is not seen?

Namely. the Fed is acting as 3rd party to effectively, via bailout "help", force the receiver of the handout into puppet-status.

By these acts, the ECB and BOJ are made submissive to any Fed [neocon, et al]  superior viewpoint,  i.e. parental authority. 

Classic corruption technique to dominate and make others less.

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