Apex banks concerns doused

Four central banks, including the Bank of England, have announced they will no longer be providing daily measures to boost the flow of US dollars to lenders around the world. Instead, these operations will be held weekly from May 1. Policymakers had previously taken action after the collapse of two US banks, Silicon Valley Bank and Signature Bank, had caused panic in the global banking sector. The banks’ decision to return to weekly operations was due to “improvements in US dollar funding conditions” and “low demand” at recent liquidity operations.

Although the banks have stated that they stand ready to readjust the provision of US dollar liquidity as market conditions require, a drop in banking stocks has served as a reminder that investors remain jittery about the sector. The news comes after UBS, Switzerland’s biggest bank, posted disappointing first-quarter results and First Republic, a US regional bank, reported a 41% drop in total deposits in the first quarter.

During the 2008 global financial crisis, European banks had struggled to obtain US dollars as funding from investors dried up. The current announcement to return to weekly operations using dollar swap lines, agreements between the US Federal Reserve and other central banks to provide dollars in exchange for other currencies, is aimed at preserving financial stability and ensuring the continued flow of credit to households and businesses.

The central banks have also stated that the frequency of these operations could increase again if required. The decision to move to weekly operations had been made in consultation with the US Federal Reserve, which is the primary source of dollars, and is a key instrument in central banks’ toolbox aimed at preserving financial stability.

Despite the move to weekly operations, broader US stocks have initially fallen, with Europe’s benchmark bank index down by 1.9% in late morning trade. This is an indication that investors remain jittery about the banking sector, despite the reassurances from the central banks.