MNI BRIEF: Banks To Start Tapping ECB For Liquidity –Schnabel
MNI (ROME) - The European Central Bank expects that more banks will tap Frankfurt’s liquidity-providing operations as excess liquidity declines due to quantitative tightening, Executive Board member Isabel Schnabel said in a speech on Thursday.
“Excess liquidity remains ample in the euro area” and the reduction of collateral scarcity is helping to improve market functioning, Schnabel said, noting that many banks still don’t participate in the repo market.
“So, on reporting dates, or at lower levels of excess liquidity, repo rates could rise above the DFR”, she said noting that this could happen if banks refrain from lending reserves into money markets in order to comply with regulatory liquidity ratios. “Such intermediation constraints may help explain the premium that we are seeing today for repo transactions covering the year-end, even for the most liquid collateral”, she added.