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The Bank of England announced that it will extend its swap line to the European Central Bank until September 28, 2012, according to a Bloomberg report.This will allow the ECB to borrow as much as £10 billion (worth $16 billion) in sterling.
Established in December 2010, the swap line allows the ECB to borrow British currency at low exchange rates in order to maintain liquidity in the eurozone’s banking system. This extension bodes poorly for those worrying about a new credit crunch.
We’ve seen a number of signs that bank funding is rapidly becoming an issue in Europe, and the extension of swap lines will not assuage these fears.