The Swiss National Bank will offer up to USD 6 billion in short term credit to ease strains in financial markets.

18 April 2008

ZURICH - The Swiss National Bank will offer up to USD 6 billion (CHF 6.2 billion) in short term credit to ease strains in jittery financial markets, the central bank said Friday.

SNB's move will come in an auction of so-called repo loans, or repurchase agreements, to renew a similar measure of USD 6 billion made last month in concert with the European Central Bank, the U.S. Federal Reserve and the Bank of Canada.

''The bases for these tenders were developed jointly with other central banks, and we are still drawing these dollars from the Fed, but by now, not each individual offering is discussed among the central banks,'' said Werner Abed, spokesman for the SNB. It is the fourth in a series of auctions by the SNB since December.

The new 28-day offer will be made on Tuesday and renew the previous offer due to expire 24 April, the central bank said. Under repo loans banks bid for the chance to borrow and put up securities as collateral in order to get ready cash to operate.

The European Central Bank auctioned USD15 billion (CHF 15.4 billion) to European banks earlier this month in coordination with a USD 50 billion auction (CHF 51.3 billion) by the U.S. Federal Reserve. It was the ninth in a series of auctions by the Washington-based Federal Reserve that began in December and have so far pumped USD310 billion (CHF 317.7 billion) into the U.S. banking system.

A summary of the SNB's auction results on Tuesday will be announced at the same time as the Federal Reserve and the European Central Bank will publish their auction results.

The moves come as governments are working to combat the effects of a severe credit crisis stemming from the plunge in housing prices and the credit crunch triggered by rising defaults on risky mortgages.

Christen Linowsky, an economist with Credit Suisse Gruop, said the market had expected a renewal of the SNB's liquidity offer.

''The SNB could see in the last auction the demand was there,'' he said.

David Marmet, an economist at Zuercher Kantonalbank, said, ''It seems the strain in the money market isn't over and the confidence between commercial institutions isn't yet restored.''

Bank Sarasin economist Alessandro Bee said the SNB's new auction will give much-needed dollar liquidity to the Swiss banks.

''At the moment a rate cut in Switzerland is very unlikely, so by this facility the SNB provides the possibility for banks to obtain U.S. liquidity - that's what they need,'' Bee said.

[AP / Expatica]