Fed Gov. Duke: Central Bank Cooperation Critical

Fed Gov. Duke: Central Bank Cooperation Critical

Fed Gov DukeThe international financial crisis and other global economic concerns have highlighted the imperative that central banks must cooperate to achieve their individual mandates and to support financial stability around the world, Federal Reserve Governor Elizabeth Duke said in a July 20 speech.

"This need for coordination has been especially true during the recent crisis, when the actions of central banks working together proved very helpful in easing financial strains and boosting confidence," Duke said at the Center for Latin American Monetary Studies 60th anniversary conference in Mexico City. "Indeed, closer ties and more open lines of communication across central banks are some positive outcomes of these difficult times."

Rare example of a coordinated policy rate move
Duke outlined numerous examples of successful central bank cooperation in both monetary policy and financial regulation. She recalled a rare instance of international coordination on policy rate decisions in October 2008. On that occasion, the Federal Reserve and five other major central banks jointly announced reductions in their main policy interest rates.

"With clear signs of simultaneous economic slowing in many countries, this coordinated action sent a strong positive signal to financial markets about policymakers’ collective intent to mitigate the effects of the crisis on their economies," Duke said.

Swaps eased pressures
She also recapped the currency swap arrangements the Fed established with 14 foreign central banks. Those arrangements reduced funding pressures and interbank interest rates while also helping to allay market fears, Duke noted. She pointed out that while four of the central banks that were involved in the swap lines—Brazil, Canada, New Zealand, and Singapore—did not draw on the facilities, "it is generally believed that the existence of the lines helped prevent stresses that could have otherwise developed."

In addition to monetary policy strategies, central banks have also cooperated in confronting financial supervisory challenges. For example, central banks with supervisory duties have helped design and promote international frameworks to strengthen capital and liquidity requirements.

August 8, 2012