These provisions were an important part of the powerful response launched by monetary authorities during the crisis to keep global financial markets open, curbing lofty dollar funding costs which had spiraled due to fear over counter-party risk. Swap arrangements were revised and extended in November, 2011 as the euro zone debt crisis intensified, to ease the dollar funding pressure being experienced by some European banks.
Washington views the problems in Europe as a direct threat to the US economy's own tepid recovery owing to deep trade links, and sanctioning the dollar swaps is one direct way US authorities can help out their European counterparts. Use of the swap lines peaked at $583 billion in December, 2008 but has since steadily declined, and stood at around $12 billion earlier this month.
The Fed said the central banks had also renewed until February 1, 2014, bilateral currency swap arrangements that would also provide liquidity "should market conditions so warrant." The Bank of Japan separately said that it will decide on joining the extension of central bank liquidity swap arrangements at its next policy meeting, on December 19-20. The Fed's dollar swaps have led some political foes of the US central bank to claim that it was putting American taxpayer money at risk. The Fed robustly denied this accusation.