ANNUAL REPORT 2008 - Polymer Bank Notes of the World

10 July for amounts of €25 billion each. During 2008 these operations were all renewed whenthey matured.3 Operations in connection with the US dollar Term Auction FacilityIn order to address disruptions in the European US dollar funding markets triggered by thefinancial market turmoil, in 2007 the ECB established a reciprocal currency arrangement (swapline) with the Federal Reserve System. In connection with the US dollar Term Auction Facilityof the Federal Reserve System, and in close cooperation with other central banks, the Eurosystemprovided the US dollar funding received via this swap line to its counterparties against collateraleligible for Eurosystem credit operations.The Eurosystem provided US dollar liquidity for the first time in December 2007, in two operationswhich were renewed in January 2008. In view of the reduced demand for US dollars followingthese operations, the Eurosystem temporarily discontinued its US dollar-providing operations inFebruary. However, liquidity pressures in funding markets increased again in February and atthe beginning of March and prompted coordinated action by several central banks to address therenewed tension. As part of this coordinated action, the Governing Council decided on 11 Marchto reactivate the provision of US dollar funding to Eurosystem counterparties.US dollar funding was provided on a bi-weekly basis with a maturity of 28 days and for anamount of USD 15 billion in each auction. However, in view of persisting money market strainsin some funding markets, evidenced by the high deposit rates for terms longer than overnight(e.g. one week) in various currencies, the unusually high US dollar rates implied by foreignexchange swap rates and the strong levels of demand in the Eurosystem’s US dollar operations,the amount in each bi-weekly auction was raised to USD 25 billion on 2 May.In order to better accommodate banks’ US dollar funding needs, the existing EurosystemUS dollar funding facilities were further enhanced on 30 July. The ECB, in coordination withthe Federal Reserve System, announced the introduction of an 84-day Term Auction Facility tocomplement the existing 28-day US dollar funding. However, the total outstanding amount wasleft unchanged at USD 50 billion.Liquidity management from October to December 2008As tensions across all segments of the money market intensified in mid-September 2008, theECB adopted five additional liquidity management measures.1 Fixed rate tenders with full allotmentHeightened pressure in financial markets in the second half of September and early October2008 led to additional disruption in money markets, making it increasingly difficult for creditinstitutions to obtain funding on the money market. In response to these developments, theGoverning Council decided on 8 October that as of 15 October, and at least until the end ofthe maintenance period ending on 20 January 2009, all MROs would be conducted as fixedrate tenders with full allotment. This measure was aimed at signalling to market participantsthat the ECB was willing to supply as much liquidity as needed to avoid a liquidity crisis.100 ECBAnnual Report2008