Central banks including the Federal Reserve, Bank of England and European Central Bank join forces to avert credit crunch

In a bid to avoid a credit crunch, top central banks have joined forces to open a US dollar funding facility for financial markets to ensure there is enough liquidity available in the banking system.

Top central banks have joined forces to open a US dollar funding facility for financial markets to ensure there is enough liquidity available in the banking system. Picture: Michael M. Santiago /AFP

Some of the world’s biggest central banks have banded together to open a US dollar funding facility for financial markets to ensure there is enough liquidity available in the banking system and head off a credit crunch.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank have announced a co-ordinated action to provide liquidity via a standing US dollar liquidity swap line arrangement.

The move marks one of the biggest co-ordinated central funding moves since the global financial crisis, and comes hours after a rescue of Swiss-based investment bank Credit Suisse was announced.

“The network of swap lines among these central banks is a set of available standing facilities and serves as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” the Swiss central bank said in a statement.

Australia’s central bank is not involved, but insight into the moves are likely, with RBA assistant governor Chris Kent speaking in Sydney on Monday.