FRANKFURT (BLOOMBERG) – European banks took US$130 billion made available by the US Federal Reserve on Wednesday, helping ease the funding stress from the coronavirus pandemic.

Lenders from the euro zone borrowed the bulk of the money – US$112 billion in operations coordinated by the European Central Bank. That’s the biggest use of the crisis-era swap lines since the global financial meltdown more than a decade ago.

UK lenders took US$15.5 billion via the Bank of England, and Swiss institutions took US$2.6 billion. Banks were offered loans for 84 days at 0.38 per cent and and 7 days at 0.45 per cent.

The increased demand comes as signs of stress flare up in funding markets, with the premium for getting dollars against several of the world’s major currencies exploding amid concerns over liquidity.

The early reaction to the dollar operations in funding markets was promising. Cross-currency basis swaps for euro-dollar, a proxy for how expensive it is to acquire the greenback, retreated further from levels last seen in 2011, touched Tuesday.

On Sunday, the Fed on Sunday beefed up existing swap lines with the world’s major central banks including the ECB, the Bank of Japan, the Bank of Canada and the Swiss National Bank as part of its easing package, lowering their cost and extending their duration.

Problems with sourcing dollars are reminiscent of the stress faced by the financial system at the onset of the 2008 financial crisis. Central-bank swap arrangements were designed to prevent the repeat of such troubles in the future.

The provision of dollar funding comes a day after the ECB lent banks 109.1 billion euros until June, when more favorable targeted long-term loans become available.

Policy makers globally are scrambling to provide an effective safety net for the economy, which is all but certain to fall into recession as production is hit and services shut down.

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