Money markets, central bank balance sheet and regulation

Arbeitspapier

This paper analyses money market developments since 2005, and examines factors that have affected money market functioning. We consider several metrics of activity in both secured and unsecured euro area money markets, and study interactions with new Basel III regulations and with central bank policies (liquidity provision, asset purchases and the Securities Lending Programme). Using aggregate data, we document that, prior to 2015, heightened financial market volatility coincided with worsening money market conditions, while higher central bank liquidity provision was associated with reduced money market stress. After 2015, the evidence is consistent with central bank asset purchases inducing scarcity effects in some money market segments, and with active securities lending supporting money market functioning. Using transactions-level money market data combined with supervisory data, we further document that the leverage ratio regulation impacts money markets at quarter-ends due to "window-dressing" effects, reducing money market volumes and rates. We also consider the macroeconomic impact of changing money market conditions, finding that the impact depends on whether frictions originate in secured or unsecured markets and on central bank policies in place.

Object Details

• ISBN: 978-92-899-4400-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2483

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Central Banks and Their Policies ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Institutions and Services: General ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Money markets ; asset purchases ; securities lending ; leverage ratio ; liquidity coverageratio

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Corradin, Stefano ; Eisenschmidt, Jens ; Hoerova, Marie ; Linzert, Tobias ; Schepens, Glenn ; Sigaux, Jean-David
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2020

Further information

• DOI: doi:10.2866/48282
• Handle: http://hdl.handle.net/10419/229097
• Last update: 10.03.2025, 11:44 AM CET