PUBLIC AND PRIVATE LIQUIDITY DURING CRISES TIMES: EVIDENCE FROM EMERGENCY LIQUIDITY ASSISTANCE (ELA) TO GREEK BANKS
Board of Governors of the Federal Reserve System
Bank of Greece and University of Piraeus
London Business School and CEPR
In a surprise move during a crisis, the ECB excluded Greek Government Bonds from the set of eligible collateral in monetary policy operations. In turn, Greek banks turned to Emergency Liquidity Assistance (ELA) to meet their funding needs. ELA replenished losses from all funding sources, consistent with its role as LOLR. However, in anticipation to a switch to ELA, banks reduced their interbank and corporate lending as a result of its higher cost and conditionality. Although multi-lender firms compensated for the associated credit crunch, single-lender firms that were not able to establish new lending relationships experienced a reduction in their exports.
JEL-Classification: E58, G21, G28
Keywords: Central Bank Interventions, Lender of Last Resort (LOLR), Collateral Framework, Emergency Liquidity Assistance (ELA)
Acknowledgments: We thank Sergio Mayordomo, Jose-Luis Peydro, Philipp Schnabl and conference participants at the 8th workshop of the MPC Task Force on Banking Analysis for Monetary Policy for helpful discussions. The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Federal Reserve System or its Board of Governors, the Bank of Greece or the Eurosystem.
Economic Analysis and Research Department,
Bank of Greece,
21 El. Venizelos Av.,
10250 Athens, Greece