Transcript Monetary policy of the ECB in crisis times

MONETARY POLICY OF THE
ECB IN CRISIS TIMES
By Stefan Terink
Content







1. Introduction
2. Instruments
3. Balance Sheet Development
4. Maintenance Period Front Loading
5. Key Interest Rate
6. Spike In Lending Facility
7. Wrap-up
1. Introduction

European Central Bank
 Established
in 1998
 Objective: Maintain price stability
2. Instruments

Three main tools:
 Open
Market Operations
 Standing Facilities
 Reserve Requirements
3. Balance Sheet Development

6 significant changes in the balance sheet
1
2
3
4
6
5
1100
900
500
300
100
-100
-300
MRO
6-m LTRO
FTO Providing
Liquidity Needs
1 MP LTRO
12-m LTRO
FTO Absorb.
Ja
n11
Ju
l-1
0
O
ct
-1
0
Ja
n10
Ap
r-1
0
Ju
l-0
9
O
ct
-0
9
Ja
n09
Ap
r-0
9
Ju
l-0
8
O
ct
-0
8
Ja
n08
Ap
r-0
8
-500
Ju
l-0
7
O
ct
-0
7
Billion €
700
3-m LTRO
Outright Portfolio
Net recourse to standing facilities
3. Balance Sheet Development

1: Tension in the interbank market?
1
2
3
4
6
5
1100
900
500
300
100
-100
-300
MRO
6-m LTRO
FTO Providing
Liquidity Needs
1 MP LTRO
12-m LTRO
FTO Absorb.
Ja
n11
Ju
l-1
0
O
ct
-1
0
Ja
n10
Ap
r-1
0
Ju
l-0
9
O
ct
-0
9
Ja
n09
Ap
r-0
9
Ju
l-0
8
O
ct
-0
8
Ja
n08
Ap
r-0
8
-500
Ju
l-0
7
O
ct
-0
7
Billion €
700
3-m LTRO
Outright Portfolio
Net recourse to standing facilities
3. Balance Sheet Development

2: Fixed rate tender with full allotment
1
2
3
4
6
5
1100
900
500
300
100
-100
-300
MRO
6-m LTRO
FTO Providing
Liquidity Needs
1 MP LTRO
12-m LTRO
FTO Absorb.
Ja
n11
Ju
l-1
0
O
ct
-1
0
Ja
n10
Ap
r-1
0
Ju
l-0
9
O
ct
-0
9
Ja
n09
Ap
r-0
9
Ju
l-0
8
O
ct
-0
8
Ja
n08
Ap
r-0
8
-500
Ju
l-0
7
O
ct
-0
7
Billion €
700
3-m LTRO
Outright Portfolio
Net recourse to standing facilities
3. Balance Sheet Development

3: 12 months lasting loans
1
2
3
4
6
5
1100
900
500
300
100
-100
-300
MRO
6-m LTRO
FTO Providing
Liquidity Needs
1 MP LTRO
12-m LTRO
FTO Absorb.
Ja
n11
Ju
l-1
0
O
ct
-1
0
Ja
n10
Ap
r-1
0
Ju
l-0
9
O
ct
-0
9
Ja
n09
Ap
r-0
9
Ju
l-0
8
O
ct
-0
8
Ja
n08
Ap
r-0
8
-500
Ju
l-0
7
O
ct
-0
7
Billion €
700
3-m LTRO
Outright Portfolio
Net recourse to standing facilities
3. Balance Sheet Development

4: Start buying covered bonds
1
2
3
4
6
5
1100
900
500
300
100
-100
-300
MRO
6-m LTRO
FTO Providing
Liquidity Needs
1 MP LTRO
12-m LTRO
FTO Absorb.
Ja
n11
Ju
l-1
0
O
ct
-1
0
Ja
n10
Ap
r-1
0
Ju
l-0
9
O
ct
-0
9
Ja
n09
Ap
r-0
9
Ju
l-0
8
O
ct
-0
8
Ja
n08
Ap
r-0
8
-500
Ju
l-0
7
O
ct
-0
7
Billion €
700
3-m LTRO
Outright Portfolio
Net recourse to standing facilities
3. Balance Sheet Development

5: Start buying Greek bonds
1
2
3
4
6
5
1100
900
500
300
100
-100
-300
MRO
6-m LTRO
FTO Providing
Liquidity Needs
1 MP LTRO
12-m LTRO
FTO Absorb.
Ja
n11
Ju
l-1
0
O
ct
-1
0
Ja
n10
Ap
r-1
0
Ju
l-0
9
O
ct
-0
9
Ja
n09
Ap
r-0
9
Ju
l-0
8
O
ct
-0
8
Ja
n08
Ap
r-0
8
-500
Ju
l-0
7
O
ct
-0
7
Billion €
700
3-m LTRO
Outright Portfolio
Net recourse to standing facilities
3. Balance Sheet Development

6: Ratio MRO – LTRO is almost the same again
1
2
3
4
6
5
1100
900
500
300
100
-100
-300
MRO
6-m LTRO
FTO Providing
Liquidity Needs
1 MP LTRO
12-m LTRO
FTO Absorb.
Ja
n11
Ju
l-1
0
O
ct
-1
0
Ja
n10
Ap
r-1
0
Ju
l-0
9
O
ct
-0
9
Ja
n09
Ap
r-0
9
Ju
l-0
8
O
ct
-0
8
Ja
n08
Ap
r-0
8
-500
Ju
l-0
7
O
ct
-0
7
Billion €
700
3-m LTRO
Outright Portfolio
Net recourse to standing facilities
4. Maintenance Period Front Loading

Deposit Facility in normal times
Deposit facility
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
17-1-jjjj
17-2-jjjj 17-3-jjjj
17-4-jjjj
17-5-jjjj
17-6-jjjj
17-7-jjjj
17-8-jjjj
Deposit facility
17-9-jjjj
17-10-jjjj 17-11-jjjj 17-12-jjjj
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
1-1-jjjj
9-1-jjjj
17-1-jjjj
25-1-jjjj
2-2-jjjj
10-2-jjjj
18-2-jjjj
26-2-jjjj
6-3-jjjj
14-3-jjjj
22-3-jjjj
30-3-jjjj
7-4-jjjj
15-4-jjjj
23-4-jjjj
1-5-jjjj
9-5-jjjj
17-5-jjjj
25-5-jjjj
2-6-jjjj
10-6-jjjj
18-6-jjjj
26-6-jjjj
4-7-jjjj
12-7-jjjj
20-7-jjjj
28-7-jjjj
5-8-jjjj
13-8-jjjj
21-8-jjjj
29-8-jjjj
6-9-jjjj
14-9-jjjj
22-9-jjjj
30-9-jjjj
8-10-jjjj
16-10-jjjj
24-10-jjjj
1-11-jjjj
9-11-jjjj
17-11-jjjj
25-11-jjjj
3-12-jjjj
11-12-jjjj
19-12-jjjj
27-12-jjjj
4. Maintenance Period Front Loading

Deposit Facility in crisis times
Deposit facility
Deposit facility
5. Key Interest Rate
6. Spike In Lending Facility

Auction of deposits of Anglo Irish Bank and Irish
Nationwide Building Society
Marginal lending facility
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Marginal lending facility
7. Wrap-up

What did the ECB?
 Fixed
rate tender with full allotment
 12 months lasting loans
 Start buying covered bonds
 Start buying Greek bonds

Result:
 Ratio
MRO – LTRO is almost the same again
References




S. Gray. Central Bank Balances And Reserve Requirements
J. B. Taylor. The Financial Crisis And The Policy Responses: An
Empirical Analysis Of What Went Wrong
M. Catalao-Lopes. Fixed- and Variable-Rate Tenders in the
Management of Liquidity by the Eurosystem: Implications of the
Recent Credit Crisis
www.ECB.int
Questions?