Some have been asked why the Fed recently provided dollar loans and swaps to Europe. Applebaum explains that the short answer is maturity mismatch. European banks invest heavily in the US based on short-term funding. That funding dried up as those providing it became concerns about the banks.
The European banks get short-term funds in euros and convert them to dollars. But this funding recently went directly into dollar instruments like Treasuries as capital fled the euro. Thus the banks were caught short of funding to meet their short-term obligations in USD. So the fed obliged with the dollars.
Read about it at The New York Times
Why Do Foreign Banks Need Dollars?
By Binyamin Appelbaum
(h/t Mark Thoma)