Money & Finance › Money flows around the world › Eurodollars: the offshore dollar banking system
Fed dollar swap lines and the FIMA repo facility
Dec 2007; standing since 2013· Institution or agency
Fact, law or dataA rule, statute, definition or measured number.
Arrangements that let foreign central banks borrow dollars from the Fed to lend to their own banks in a crunch.
See it on the Money & Finance map →How it works
In a swap the Fed gives the ECB, say, $10 billion and takes euros of equal value; the ECB lends the dollars to its banks, bearing the credit risk; later it reverses at the same exchange rate, plus interest. Lines opened in December 2007, peaked near $580 billion in 2008, and became permanent in 2013 with the ECB and central banks of Japan, Britain, Switzerland and Canada. A FIMA repo facility, added in 2020, lets other central banks borrow dollars against Treasuries without selling them.
Why it matters
They make the Fed the world's dollar lender of last resort, calming panics abroad before they reach US markets and mortgage rates.
Facts, rules and data
The Fed's weekly H.4.1 line for central bank liquidity swaps, FOMC minutes, and studies showing dollar funding costs fell after lines opened.
Debates and risks
Who gets a line is a Fed policy choice with no published criteria; some ask whether access could become political.
Connections (3)
▸The Federal Reserve System (the Fed) lends dollars abroad through Fed dollar swap lines and the FIMA repo facilityFact, law or data
The connection
The FOMC authorizes the lines and the New York Fed runs them. The Fed credits a foreign central bank with dollars and takes its currency; that central bank lends the dollars to local banks and bears their risk. At maturity the swap reverses at the original exchange rate, so the Fed takes no currency risk.
When and why
A swap network existed from 1962; lines were revived December 12, 2007 with the ECB and the Swiss National Bank.
How we know
FOMC statements and minutes, H.4.1 balance-sheet data, and the Fed's transaction-level swap disclosures required since the 2010 Dodd-Frank Act.
Debates and risks
Who gets a line has no published criteria, and most emerging economies have none.
▸Fed dollar swap lines and the FIMA repo facility backstop Eurodollars: the offshore dollar banking systemFact, law or data
The connection
Offshore banks borrow short-term in dollars to fund longer dollar loans and securities, but they cannot borrow from the Fed. When dollar funding seizes, swap lines let their home central banks lend them dollars, making the Fed the eurodollar system's lender of last resort at one remove.
When and why
2007–09, peaking near $580 billion in December 2008, and again in March 2020.
How we know
Studies by New York Fed economists show dollar funding spreads, such as LIBOR-OIS and the cross-currency basis, narrowed after lines opened.
Debates and risks
Moral hazard: a reliable Fed backstop may encourage foreign banks to take on more dollar funding risk.
▸Fed dollar swap lines and the FIMA repo facility lent about $450 billion during COVID-19 crash and rescue (2020)Fact, law or data
The connection
In March 2020, as investors dashed for cash, dollar funding dried up worldwide. The Fed cut swap-line pricing, offered 84-day loans, opened lines with nine more central banks including the Bank of Korea ($60 billion), and created the FIMA repo facility. Drawings peaked near $450 billion in late May 2020.
When and why
March 15–31, 2020; the Bank of Korea drew about $20 billion, which helped steady the won.
How we know
H.4.1 balance-sheet data and New York Fed reports on swap-line usage in 2020.
Debates and risks
Researchers debate how much the lines, versus the Fed's broader rescue, calmed markets, and whether such access would be offered again.