Lender of Last Resort versus Buyer of Last Resort – Evidence from the European Sovereign Debt Crisis
Viral Acharya,
Diane Pierret and
Sascha Steffen
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Sascha Steffen: Frankfurt School of Finance & Management
No 18-35, Swiss Finance Institute Research Paper Series from Swiss Finance Institute
Abstract:
We document channels of monetary policy transmission to banks following two interventions of the European Central Bank (ECB). As a lender of last resort via the long-term refinancing operations (LTROs), the ECB improved the collateral value of sovereign bonds of peripheral countries. This resulted in an elevated concentration of these bonds in the portfolios of domestic banks, increasing fire-sale risk and making both banks and sovereign bonds riskier. In contrast, the ECB’s announcement of being a potential buyer of last resort via the Outright Monetary Transaction (OMT) program attracted new investors and reduced fire-sale risk in the sovereign bond market.
Keywords: Bank-sovereign nexus; ECB; fire sales; unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2018-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mon
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Citations: View citations in EconPapers (10)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1835
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