Fed makes $50 billion available to European bank

Effort to ensure enough liquid currency overseas

Terrorism Strikes America

Business Impact

September 14, 2001|By Robert Little | Robert Little,SUN STAFF

The Federal Reserve made $50 billion in U.S. currency available to the European Central Bank yesterday, hoping to forestall any economic troubles faced by overseas banks that had American offices shuttered by the terrorist attacks in New York.

European banks often settle international transactions in American dollars, and need U.S. currency to make dollar-based loans and to trade in American markets. Because many of those banks have their American offices in lower Manhattan, the Fed said it is concerned that supplies of dollars overseas could run low.

The "swap line" of cash is designed to "help meet dollar liquidity needs of European banks, whose U.S. operations have been affected by the recent disturbances in the United States," the Fed said in a statement.

The European Central Bank will be able to draw on the $50 billion pool of dollars by depositing an equivalent amount of euros with the Fed. The money will be available for 30 days.

"This is basically the Fed promising that anybody who needs to conduct business will have the capital available to do it," said Joel Naroff, of Naroff Economic Advisors. "Under normal circumstances there is a seamless flow of currencies between banks ... We're not out of business, but we're not fully functional either."

With most of Manhattan's financial district closed, and telephone and electricity service down, many banks worldwide do not have access to their records and staffs. Some banks, such as Citigroup Inc. and Bank of America Corp., moved currency trading operations out of New York.

Some American offices of overseas banks, such as London-based Standard Chartered, were destroyed when the World Trade Center towers collapsed. Standard Chartered, whose employees escaped the collapse, has opened a temporary office in New Jersey.

The Federal Reserve itself was affected. Officials announced yesterday that the Federal Reserve Bank of New York has been temporarily relocated to East Rutherford, N.J. The bank's headquarters on Liberty Street is two blocks from where the Twin Towers once stood. The main Federal Reserve bank for foreign currency trades, it contains more than $80 billion worth of gold bars. A Fed spokesman told Reuters: "The gold is safe."

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