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What is the role played by the Eurosystem during the financial crisis ?

Listed author(s):
  • J. Boeckx

    (National Bank of Belgium, Research Department)

Since the onset of the financial crisis, the Eurosystem has cut interest rates on several occasions and has assumed an increasingly prominent role as a financial intermediary. It stepped up its lending to liquidity-constrained banks and at the same time gave cash-rich banks the opportunity to place their liquidity surpluses with a safe counterparty, the central bank. The Eurosystem acts as an intermediary not only for individual banks, but increasingly for national banking sectors as well, especially as a result of the sovereign debt turmoil and the close link between the financial situation of sovereigns and that of resident banking sectors. As a consequence, the Eurosystem’s balance sheet has expanded significantly and there has been dramatic growth in the TARGET2 positions of national central banks. The Eurosystem’s accommodative monetary policy is not without risks, however. The policy entails both financial risks for the central bank and possible negative macro-economic side effects. Nor do these actions offer a solution for all the challenges that the euro area is facing today. In order to tackle these challenges, structural measures and adjustments are needed. However, through its increased role as a financial intermediary the Eurosystem can buy the necessary time for the relevant actors to implement these measures in an orderly way.

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Article provided by National Bank of Belgium in its journal Economic Review.

Volume (Year): (2012)
Issue (Month): ii (September)
Pages: 7-28

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Handle: RePEc:nbb:ecrart:y:2012:m:september:i:ii:p:7-28
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  1. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
  2. repec:hrv:faseco:33077925 is not listed on IDEAS
  3. J. Boeckx & Ide,S., 2012. "What can we and can't we infer from the recourse to the deposit facility?," Economic Review, National Bank of Belgium, issue i, pages 31-37, June.
  4. N. Cordemans & M. de Sola Perea, 2011. "Central bank rates, market rates and retail bank rates in the euro area in the context of the recent crisis," Economic Review, National Bank of Belgium, issue i, pages 27-52, June.
  5. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
  6. Andrei Shleifer & Robert Vishny, 2011. "Fire Sales in Finance and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 29-48, Winter.
  7. Bindseil, Ulrich & Winkler, Adalbert, 2012. "Dual liquidity crises under alternative monetary frameworks: a financial accounts perspective," Working Paper Series 1478, European Central Bank.
  8. E. De Prest & H. Geeroms & G. Langenus, 2012. "New developments in the economic governance of the European Union," Economic Review, National Bank of Belgium, issue i, pages 101-120, June.
  9. N. Cordemans & S. Ide, 2012. "Monetary policy in the United States and the euro area during the crisis," Economic Review, National Bank of Belgium, issue i, pages 39-63, June.
  10. Ulrich Bindseil & Philipp Johann König, 2011. "The economics of TARGET2 balances," SFB 649 Discussion Papers SFB649DP2011-035, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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