MNI BRIEF: PEPP, TLTROs Supported NBFIs During Covid - Study

Money market funds with larger shares of assets later eligible for inclusion in the ECB’s pandemic emergency purchase programme (PEPP) in their portfolios experienced significantly lower outflows and performed better during the Covid pandemic than otherwise comparable non-bank financial intermediaries, a research bulletin published Thursday concludes.

Despite not being directly eligible for lender of last resort interventions by the central banks, non-banks holding high-quality assets were able to benefit from asset purchases through banks’ repo lending. Those banks that took advantage in March 2020 of the ECB’s pandemic-specific targeted long-term refinancing operations (TLTROs) were up to five times more likely to pass on central bank liquidity to non-banks.

But the study's authors concluded, "central bank interventions to preserve market functioning should be a last resort and not a substitute for the private sector self-insuring against liquidity risk, e.g., by means of appropriate holdings of liquid assets" - echoing recent central bank financial stability concerns linked to potential vulnerabilities within the non-bank sector.