…the Fed is, working through the ECB, bailing out European banks…
A former V.P. with The Federal Reserve Bank of Dallas describes how The U.S. Federal Reserve is bailing out Europe and its banks by swapping dollars for Euros with the ECB (the European Central Bank).
The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.
Why should we care? According to O’Driscoll, the Fed has no authority to help Europe or its central bank bail out its spendthrift countries or its bankrupt banks.
Fed Chairman Ben Bernanke met with Republican senators on Dec. 14 to brief them on the European situation. After the meeting, Sen. Lindsey Graham told reporters that Mr. Bernanke himself said the Fed did not have “the intention or the authority” to bail out Europe. The week Mr. Bernanke promised no bailout, however, the size of the swap lines to the ECB ballooned by around $52 billion.
About Currency Swaps Swaps
Technically, what they’re doing is called a Central Bank Liquidity Swap, which is a type of currency swap, which is a type of swap.
Here’s a simplified explanation describing a currency swap:
More About Swaps