BIS: The liquidity consequences of the euro area sovereign debt crisis

31 March 2013

This working paper examines the liquidity effects of the euro area sovereign debt crisis, including its effects on euro area banks as a group, on intra-euro area financial flows, on the supply of and demand for collateral, and on international liquidity.

The lending capacity of the euro area banking system has been much weakened, despite the remarkable growth of the operations of the Eurosystem, including its greatly increased lending, its intermediation between national central banks in surplus and deficit countries and its collateral policy.

The euro crisis has also created international liquidity stresses. The authors of the working paper find that central bank swap lines have had only limited effectiveness in alleviating the stresses, probably owing to some stigma being attached to their use.

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