The (unintended?) consequences of the largest liquidity injection ever

Arbeitspapier

We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank's three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening.

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• ISBN: 978-92-95081-66-6
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ESRB Working Paper Series ; No. 31

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Central Banks and Their Policies ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; National Debt; Debt Management; Sovereign Debt
• Thema: Lender of Last Resort ; Unconventional Monetary Policy ; Sovereign Debt

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Crosignani, Matteo ; Faria-e-Castro, Miguel ; Fonseca, Luís
• Ereignis: Veröffentlichung
• (wer): European Systemic Risk Board (ESRB), European System of Financial Supervision
• (wo): Frankfurt a. M.
• (wann): 2016

Weitere Informationen

• DOI: doi:10.2849/63995
• Handle: http://hdl.handle.net/10419/193538