The European Central Bank is one of the largest players in the European bond market.
From the point of view of ECB Director Isabel Schnabel, the virus pandemic is not without consequences on the money market. Among other things, the availability of collateral that commercial banks have to provide in lending transactions with the European Central Bank (ECB) must be carefully monitored, the German economist said on Monday at an ECB event.
This availability is crucial for the functioning of the money markets, said Schnabel. In view of the central bank's bond purchases, this also applies if the relief measures in the pandemic crisis cushioned bottlenecks.
In order to contain the crisis, the ECB had launched a new, extensive bond purchase program (PEPP) tailored to the virus pandemic, in addition to its massive bond purchases. It is now designed for 1.35 trillion euros and should run until at least the end of June 2021. With their large-scale bond purchases, the monetary authorities have long been one, if not the largest, player in the European bond market.
According to Schnabel, the central bank must also keep an eye on the increasingly important role of shadow banks in the money market. “Unlike banks, these market participants often do not have access to central bank operations,” she said. If the ECB's measures no longer have such a strong impact on money market interest rates or if interest rates deviate from central bank expectations, this could have consequences for the implementation of monetary policy in the future, she warned.
The so-called shadow banking sector of the financial economy has grown strongly worldwide since the financial crisis in 2008. These include hedge, money market and investment funds as well as stock market traders, who are playing an increasingly important role, for example, in the high-risk business with high-interest loans. For a long time now, critics have been calling for greater monitoring and regulation of this part of the financial sector.
