ECB reportedly weighs dollar swap with Fed

LONDON (MarketWatch) -- The European Central Bank on Monday injected another 47.5 billion euros ($65 billion) in loans into the banking system and is reportedly in talks with the U.S. Federal Reserve on a currency swap, so it can provide dollars to European banks struggling to meet money-market needs.
Should the ECB and Fed agree on such a swap, the Frankfurt-based central bank would exchange euros or other currencies it holds for dollars. The ECB and the Fed would then unwind the trade after a fixed term -- say 30 days, as done in the aftermath of the Sept. 11 terrorist attacks -- and the ECB would pay a small amount extra to reflect the 1.25 percentage point gap in the central banks' interest rates.
The ECB, which last week pumped more than 150 billion euros into the European banking system, is reportedly seeking out dollars because of difficulties that European banks are having with funds invested in asset-backed securities, according to several British media reports.

Other asset-backed securities funds from Union Investment, Frankfurt Trust and WestLB Mellon Asset Management have also been halted.
In addition to the halting of those funds, there are European money-market funds -- so-called "enhanced" money-market funds -- that have investment exposure to the asset-backed securities sector.
According to data compiled by Morningstar, there are more than 500 of enhanced money market funds available in Europe, though not all are invested in asset-backed securities. More than 25% have declined in value over the last month.