Central banks can provide liquidity to banks through quantitative easing (QE) by buying securities and pay for them by printing money which increases bank reserves at central banks. Central banks can also increase swap liquidity (SL) by lowering the swap rates among themselves on different currencies . This should enable central banks to provide loans to commercial banks in certain currencies at lower rates during crises.

But the timings of  these sources of liquidity are different and may have different motives and impulses. The primary motive of QE is to increase bank liquidity to prompt them to start lending and help the economy recover from a bad recession. The apparent motive behind the current SL at this time is to provide liquidity by the  Fed  to central banks (.i,e., ECB) in certain currencies (dollars) to help (European) commercial banks avoid insolvency and runs on reserves as happened after the collapse of the Lehman Brothers. But currently there is also a hidden motive behind this type of credit facility made available to the ECB which is to provide dollar liquidity  by the Fed to the ECB in a way that does not make  the Fed look  like  it is bailing out European banks. A swap will not look like a loan  made to European banks and governments on the Fed's balance sheet, and thus will not bring  a criticism to the Fed.

The currency that is in demand during troubling times is the U.S. currency, Unlike the euro, the U.S. dollar is considered as a safe which banks can rely on during crises and is dominantly used to finance trade. The short and long term dollar investments in Europe have left  that continent and moved to the United states, creating a shortage in U.S. dollar in European banks and making those banks more dependent on borrowing from money market institutions.

Then this means that central banks know that the crisis at the euro-zone may create a similar or a worse situation than the one that was present before the collapse of Lehman Brothers. That is, the swap liquidity is telling use that the situation in Europe is very serious and is likely to impact the whole world including the United States.

Surprisingly, the U.S. stock market considered the SL as an excellent news and jumped by more than 4% the day of the announcement. Swap liquidity is good but not excellent news to banks, their stocks and the global stock markets because it helps banks adjust their balance sheets over a specified period of time which is the swap period. It helps them avoid runs on their reserves. But it is not a long boast to liquidity  because it is a temporary  credit facility. But I can say that the stock markets are sensitive to surprises and the current SL has this pleasant element.

QE and SL have different effects on inflation, with the former should have stronger impact. than the latter.  SL involves swapping loans between central banks in different currencies. At the end of the swapping period, the  balance sheets should shrink and go back to their original sizes. So there is no enlargement of central banks' balance sheets as is the case with QE which led to a significant surge in commodity inflation.

Can the Fed-ECB swap hurt the U.S and its banks? Is it possible for the ECB to go under by an undertaker? The danger in here is the Fed continues to add swaps to the ECB and in sequence the European Banks. This will increasingly place the United States in the business of bailing out the European sovereign debt.