Watching re-enactments of scenes from the global financial crisis is a very peculiar experience indeed. The opening by the Fed of currency swap lines to allow the ECB and other central banks to extend dollar funding to Eurobanks was seen as an extreme measure the first time around, a sign of how close to the abyss the financial system had come. This time, allegedly because the powers that be acted before things got quite so dire, bank stocks rallied impressively. Similarly, the media treated this move as just another episode in the ongoing Perils of Pauline drama running on the other side of the Atlantic. The $2 billion loss by a UBS rogue trader got far more extensive coverage, even though rogue traders also seem to be all of a muchness.
Now narrowly, the jaundiced media response and the market bounce both make sense. The Eurodrama has gone so many chapters that it’s easy to get rescue fatigue. And a bailout handled tidily among central bankers makes for less gripping reporting that the national and interpersonal theatrics involved in the typical Eurozone cliffhanger. Similarly, the Eurobanks were under real stress by being frozen out of dollar funding, largely because US money market funds were not longer willing to do repos with them or buy their commercial paper. And US banks were also encouraged to cut back on their exposures to them. So the central banks have stepped into this breach.