Staff Working Paper No. 977
By Gerardo Ferrara, Philippe Mueller, Ganesh Viswanath-Natraj and Junxuan Wang
This paper investigates the impact of central bank swap lines during the 2020 pandemic using micro‑level data. Institutions drawing on these swap lines hold higher‑quality collateral due to stringent requirements. Using confidential transaction‑level data from the Bank of England, we study how swap line drawings affects dealer pricing and exposures in foreign exchange forward and swap contracts. We find that swap line drawings reduce pricing inefficiencies and violations of covered interest parity. These effects result from reduced demand for US dollar liquidity, as dealers use swap lines as a substitute for dollar funding rather than increasing dollar supply through arbitrage.
This version was updated in December 2024.
Central bank swap lines: micro-level evidence