Fed Restarts Currency-Swap Tool With ECB Amid Crisis (Update1) By Scott Lanman and Craig Torres May 9 (Bloomberg) -- The U.S. Federal Reserve said it will restart its emergency currency-swap tool by providing as many dollars as needed to central banks in Europe, the U.K. and Switzerland to help keep Europeâs sovereign-debt crisis from spreading to other markets. The swaps with the ECB, Bank of England and Swiss central bank will allow them to provide the âfull allotmentâ of U.S. dollars as needed, the Fed said today in a statement in Washington. A separate swap line with the Bank of Canada will support as much as $30 billion, the Fed said. The swaps were authorized through January 2011. The Fed action came as European policy makers unveiled an unprecedented loan package worth almost $1 trillion to stop a crisis that threatened to shatter confidence in the euro. The Fed on Feb. 1 had closed all swap lines opened during the financial crisis triggered by the subprime-mortgage meltdown in 2007. In a swap, central banks exchange foreign currency with an agreement to reverse the transaction at a later date. The central banks will then lend the dollars at fixed rates to firms in their countries. Dollar liquidity tightened in London last week amid concern financial institutions are holding too many assets of Europeâs most indebted nations. The London interbank offered rate, or Libor, for three- month loans climbed 5.5 basis points to 0.428 percent, the highest level since Aug. 17, according to data from the British Bankersâ Association. It was the biggest increase since Jan. 16, 2009, and the 13th straight gain. U.S. Pressure The Fedâs swaps come at a time of increasing political scrutiny. Congress could ask why the U.S. central bank is expanding the supply of dollars to help smooth disruptions caused by fiscal imbalances in Europe. Senator Bernard Sanders, a Vermont independent, wants the Government Accountability Office to look into Fed lending facilities during the crisis, including swap lines with foreign central banks, such as the $20 billion facility the Fed opened with the ECB in December 2007. A vote on the Sanders amendment could come as soon as May 11 as Congress proceeds on the most sweeping overhaul of financial regulations since the Great Depression. âMany members of Congress are deeply suspicious of the Fedâs interventionist instincts,â said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. âBailing out Wall Street caused enough resentment; appearing to bail out Greece would be even more problematic.â âThe Fed cannot afford to rile up its congressional critics while the financial reform bill is still in play,â Crandall said before tonightâs announcement.