Today, the Federal Reserve and the Reserve Bank of New Zealand announced a temporary reciprocal currency arrangement (swap line) “to address ongoing, elevated pressures in U.S. dollar short-term funding markets.” This facility, like those already established by the Federal Reserve with other central banks in Europe and Asia, “is designed to help improve liquidity conditions in global financial markets.” The Federal Reserve authorized the establishment of a new swap facility with the Reserve Bank of New Zealand that will support the provision of U.S. dollar liquidity in amounts of up to $15 billion through April 30, 2009. New Zealand’s Reserve Bank Deputy Governor said of the arrangement, “[w]hile there is no need to use the facility right now, it is useful to have this capacity if markets become dysfunctional.”

Last week, New Zealand’s Treasury and Reserve Bank released amendments to the Deposit Guarantee Scheme announced on October 12, 2008. Most notably, the previously announced deposit scheme, which covered all retail deposits, has now been capped at NZ$1 million per depositor per guaranteed institution.