ECB's Cœuré: A tale of two money markets: fragmentation or concentration

12 November 2019

Speech by Benoît Cœuré, Member of the Executive Board of the ECB, at the ECB workshop on money markets, monetary policy implementation and central bank balance sheets, in which he explains why managing liquidity conditions in the post-crisis environment has become more complex.

Large aggregate excess liquidity levels are no insurance that central banks will always find it easy to steer short-term interest rates.

Liquidity supply may have become less elastic in both the euro area and the United States, for different reasons though: in the United States because of concentration among banks, in the euro area because of fragmentation across countries, and in both cases because of the growing role of intermediaries without access to central bank balance sheets.

This calls for central banks to err on the side of caution and leave a sufficient buffer in the financial system with a view to forestalling risks of unwarranted upward pressure on short-term interest rates.

The launch of the €STR has been a welcome step in providing a more complete picture of the actual borrowing conditions facing euro area banks.

If policymakers in the future consider the impact of changes in excess liquidity on the level of the €STR to be less desirable, they could consider expanding access to the liability side of central bank balance sheets to other actors in financial markets.

Full speech on ECB

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