October 30, 2008 (LPAC)--The Federal Reserve expanded its derivatives-rescue program twice this week, creating a $15 billion swap line with the Reserve Bank of New Zealand on Oct. 28, and creating $30 billion swaps lines with the central banks of Brazil, Mexico, Korea and Singapore, for a total of $135 billion in credit lines. This currency swaps program began in December, 2007, with $20 billion to the European Central Bank and $4 billion to the Swiss National Bank, for a total of $24 billion, and has been expanded repeatedly since. The Fed now has such agreements with 14 central banks, for a total of $755 billion.

The purpose of these agreements is to provide dollars to banks and counterparties in foreign countries to help in the settlement of derivatives deals and other financial transactions denominated in dollars. The expansion of this program is thus a reflection of the rate at which the derivatives markets are exploding. To wit: The Fed expanded the program to $36 billion between the ECB and SNB in March, and increased the amount to $66 billion in May. In August, it expanded the program three separate times, adding additional central banks, increasing to $247 billion on the 18th and ending the month at $620 billion.

The Fed also cut the Fed Funds target rate and the discount rate by half a point this week, and launched its Commercial Paper Funding Facility, buying $146 billion of commercial paper in a week. As of Oct. 29, the Fed had $1.2 trillion in loans to financial institutions outstanding, including $301 billion to depository institutions via the Term Auction Facility, $298 billion to investment banks, $111 billion in discount window loans, $85 billion to AIG, and held $96 billion in asset-backed commercial paper.