ECB, Bank of England unveil huge swap facility for Ireland

17th December 2010, Comments 0 comments

The European Central Bank and Bank of England unveiled Friday a currency swap facility worth 10 billion pounds (11.7 billion euros, 15.5 billion dollars) to aid Ireland.

The facility is to expire at the end of September 2011 and "allows pounds sterling to be made available to the Central Bank of Ireland as a precautionary measure, for the purpose of meeting any temporary liquidity needs of the banking system in that currency," an ECB statement said.

Under such swap agreements, central banks exchange equivalent amounts of their currencies for predetermined periods to facilitate lending.

Because the Central Bank of Ireland is a member of the Eurosystem of Central Banks, the ECB acted as a conduit with the Bank of England for the operation.

Since the global financial crisis erupted in mid 2007, the ECB and major central banks in Europe, Japan and the United States have repeatedly set up such swaps until demand for the currencies in question receded.

Ireland's banking system has been slammed by massive losses stemming from a real-estate bubble that burst, and the government has stepped in to back up the country's leading banks.

That has forced Dublin to ask for help in turn from the European Union and the International Monetary Fund.

Earlier on Friday, the international ratings agency Moody's cut its credit rating on Ireland by five notches from Aa2 to Baa1 as EU leaders battled to protect the euro from a debt crisis that has snared Greece as well.

After getting squeezed out of interbank lending markets, Irish commercial banks have become heavy borrowers of ECB cash during regular and longer-term refinancing operations.

© 2010 AFP

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