The main recipient of the Fed’s money is the European Central Bank, which will in turn extend dollar loans to banks in the nations that use the euro currency. Those banks do significant business in dollars, for instance making loans to customers operating around the world, and have been finding it harder to raise dollars from anxious investors…

The Fed will make short-term dollar loans to the ECB and other central banks through “swap lines,” swapping dollars for an equivalent amount of euros, British pounds, Swiss francs and Japanese yen. The ECB will, in turn, make those dollars available to euro-zone banks, the Bank of England to British banks, and so on, in the form of three-month loans at a fixed interest rate.

While these loans will not ease any losses the banks could suffer from a default, say, by Greece, the initiative lubricates the European financial system, preventing temporary shortages of cash from further weakening the banks and choking off growth.