Monday, July 11, 2011
Currency swap lines crucial, Icelandic central banker says
Currency swap lines made a key difference in the heat of the financial crisis and deciding which countries get them should be at the heart of debates on economic governance, the head of the Icelandic central bank, the Sedlabanki, said Saturday.
While maturity mismatches within the same currency are “the bread and butter of banking,” maturity mismatches in different currencies are “a major fault line” and need to be taken into account my governments, regulators and markets, Mar Gudmundsson, Sedlabanki governor, said in a panel discussion at the Rencontres Economiques d’Aix en Provence conference. This is partly because as long as mismatches are in the same currency, that country’s central bank is the lender of last resort, but in the crisis it was unclear who was responsible for cross-border commitments.