Swaps Will Get Dollars Into European Banks' Hands - WSJ.com

Does the Fed face increased risk under the swap lines?

Since the Fed isn’t lending to banks directly, the risk is tiny. The ECB is responsible for giving the Fed its dollars back, so the central bank would have to collapse for the Fed to take a loss. The Fed also isn’t exposed to changes in currency rates since the Fed gets back the amount of dollars it loans out. It also earns interest on the loans.

Okay, what’s wrong with this picture?  What if the banks or bank that the ECB loan the dollars out to go bust?  Then how does the ECB get the dollars back to give to the Fed? It can only print euros not dollars.  It will be only a matter of hours before people begin to pick that scheme apart.

via Swaps Will Get Dollars Into European Banks’ Hands – WSJ.com.