Euro Area: Publication of Financial Sector Assessment Program Documentation-Technical Note on Systemic Liquidity

This Technical Note on Systemic Liquidity in the euro area highlights progress since the 2018 Financial Sector Assessment Program. Core funding markets have functioned well despite balance sheet reduction and policy rate increases. The European Central Bank (ECB) has modified its operational framework, emphasizing liquidity monitoring and establishing a horizon scanning framework. An effective euro liquidity backstop is now available to eligible central clearing counterparties, but preparations for extending Emergency Liquidity Assistance to other systemically important non-bank financial institutions should be advanced. The ECB's market-wide support framework is comprehensive, but expanding it to a broader set of counterparties under specific conditions could enhance its effectiveness. The pricing of these facilities is set higher than normal funding, making them attractive only in deteriorating conditions and encouraging repayment as conditions improve. The ECB also supports US dollar funding markets through weekly operations and maintains permanent swap lines with five major central banks, ensuring confidence in its foreign exchange liquidity supply.