Public backstop complements private liquidity – BoE paper
Wholesale funding conditions improve even without banks tapping lending facilities, researchers find
Central banks’ lending facilities do not necessarily crowd out private liquidity as the mere availability of a public backstop can stimulate activity, a working paper from the Bank of England has found.
The study, published on December 5, explores how central bank backstops affect liquidity in the private wholesale funding markets.
The authors – Matthieu Chavaz, David Elliott and Win Monroe – use confidential data on banks’ balance sheets to observe the effects of the BoE’s Funding for Lending
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