The Federal Reserve’s dollar swap lines and the European Central Bank in the 2007–2009 crisis

Mardi | 2018-10-23
Salle des thèses 17h – 18h20

Laurent LE MAUX – Emmanuel CARRé

Although the literature has analyzed the role of the Federal Reserve as the global lender of last resort in 2007-2009, many aspects of the Dollar Swap Lines to the European Central Bank need further exploration. Using data from both central banks and transcripts of the Federal Open Market Committee’s meetings, we provide original evidence about alloted amounts and interest rates on dollar provision by the Federal Reserve and the European Central Bank. We explore the relation between the Federal Reserve’s dollar swap lines and the European Central Bank’s dollar provision with regard to the auction formats, the alloted amounts, and the interest rates. We find evidence that there was a financial dilemma creating tension in dollar liquidity needed and the interest rate set by the European Central Bank, and that the Federal Reserve’s announcement on October 13, 2008 turned dramatically from one horn of the financial dilemma to the other. Finally, we revisit the literature on the international lender of last resort and enlighten the nature of the relationship of the Federal Reserve with the other central banks in general, and the European Central Bank in particular.