Stabilising virtues of central banks: (Re)matching bank liquidity

Vincent Legroux, Imène Rahmouni-Rousseau, Urszula Szczerbowicz and Natacha Valla
Additional contact information
Vincent Legroux: Banque de France - Banque de France - Banque de France
Imène Rahmouni-Rousseau: European Central Bank - European Central Bank
Natacha Valla: Institut d'Études Politiques [IEP] - Paris

Post-Print from HAL

Abstract: The liquidity of financial system plays a central role in systemic crises. In this paper, we show that the ECB haircut policies provided an important liquidity support to distressed financial institutions during the euro area sovereign debt turmoil. Using novel, micro data on the pool of collateral eligible to ECB open market operations, we construct a "public" liquidity mismatch indicator (LMI) for the French aggregate banking sector based on the ECB haircuts. We then compare it to the "private" LMI based on the haircuts in private repo markets in the spirit of Bai et al. (2018). The difference between the two indicators represents a new measure of the ECB liquidity support. Our results suggest that the ECB haircut policies indeed helped French banks to reduce the liquidity mismatch. Moreover, higher ECB liquidity support is associated with higher cash and sovereign asset holdings by the French banks as well as with their lower probability of default.

Date: 2022-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Banking and Finance, 2022, 134, ⟨10.1016/j.jbankfin.2021.106323⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Stabilising virtues of central banks: (Re)matching bank liquidity (2022)
Working Paper: Stabilising virtues of central banks: (re)matching bank liquidity (2018)
Working Paper: Stabilising virtues of central banks: (re)matching bank liquidity (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04459568

DOI: 10.1016/j.jbankfin.2021.106323

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().