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Bloomberg
The European Central Bank (ECB)could consider giving non-banks access to its balance sheet to keep control over money-market rates, according to Executive Board member Benoit Coeure.
Speaking at a money-market workshop in Frankfurt, Coeure highlighted a “possible risk†that the new short-term rate called ESTR — designed to provide a more complete picture of actual borrowing conditions — “might be less under our control†than its predecessor EONIA in an environment of excess liquidity.
A decline in demand for liquidity by non-banks, for example, as a result of a sudden spike in risk aversion could put upward pressure on the rate, he said. At the same time, non-banks — such as insurers and asset managers — could sometimes be ready to pay interest rates below the ECB’s deposit rate and the rates offered by banks.
“If policy makers in the future consider the impact of changes in excess liquidity on the level of the ESTR to be less desirable, they could consider expanding access to the liability side of central bank balance sheets to other actors in financial markets,†Coeure, who is in charge of market operations at the ECB, said.
Coeure said the switch from EONIA to ESTR last month has highlighted how market rates are affected by who can hold central-bank reserves.