During the crisis, the Eurosystem has taken a number of non-standard measures complementing its regular operating framework.
Before the crisis, the Eurosystem used to provide a pre-set amount of credit to banks through open market operations conducted through tender procedures, in which banks put up adequate collateral to guarantee the loans. Banks would also lend to and borrow from each other in the interbank market to meet their liquidity needs.
The turmoil in international money and capital markets triggered by the financial crisis affected banks in the euro area as well, which faced a lack of liquidity already from early August 2007. There were also dysfunctions in money markets. Thus, the Eurosystem decided to introduce several non-standard monetary policy measures, as described below, which have responded to the challenges posed by the different phases of the crisis.
In the first phase of the crisis, amid a lack of liquidity and dysfunctions in money markets, banks were reluctant to lend to each other in the interbank market due to a perceived increase in counterparty credit risk. Against this background, the primary aim of the Eurosystem’s non-standard measures was to provide liquidity to banks and to keep financial markets functioning.
During that first phase of the crisis, the Eurosystem decided:
- to adopt a fixed-rate full allotment tender procedure for open market operations (since October 2008);
- to extend the maturity of open market operations (through six-month longer-term refinancing operations and three one-year operations) and to conduct complementary three-month open market operations; and
- to expand the range of eligible assets that could be used as collateral in refinancing operations.
In the second phase of the crisis, which took the form of a sovereign debt crisis, the Eurosystem’s non-standard monetary policy measures aimed to address markets’ malfunctioning to reduce dispersion in financing conditions faced by businesses and households in different euro area countries.
In the second phase of the crisis, the Eurosystem:
- conducted the Securities Markets Programme (SMP) and intervened in the secondary market by purchasing government bonds issued by certain countries (from May 2010 to September 2012);
- purchased eligible covered bonds under its Covered Bond Purchase Programme − CBPP1 (July 2009-June 2010) and CBPP2 (November 2011-October 2012);
- carried out two Very Long-Term Refinancing Operations (VLTROs) with a maturity of three years (December 2011-February 2015);
- announced, in September 2012, Outright Monetary Operations (OMT), i.e. purchases of government bonds subject to strict conditionality. The programme has never been activated.
In the third phase of the crisis, the Eurosystem's non-standard measures were aimed to address the risk of deflation. With short-term interest rates already close to zero, the non-standard measures were intended to influence the whole constellation of interest rates that are relevant for financing conditions in the euro area.
The non-standard measures during the third phase of the crisis included:
- a negative interest rate on the deposit facility (since June 2014),
- Targeted Longer-Term Refinancing Operations (TLTROs), designed to support bank lending to businesses and households. The first series of operations (TLTRO I) was announced in June 2014, the second (TLTRO II) in March 2016 and the third (TLTRO III) in March 2019;
- forward guidance, which means communicating how the ECB expects its policy measures to evolve in the future and what conditions would warrant a change in the policy stance (since July 2013); and
- the expanded asset purchase programme (APP).