More than 30 central banks expressed interest in the European Central Bank’s expanded euro liquidity facility over the past six months, Philip Lane said in remarks published by the central bank on Wednesday.
The enhanced framework introduces standing access in principle for all central banks, subject to exclusions, Lane said. The ECB published “Philip R. Lane: Euro liquidity lines and the international monetary system” on Oct. 21.
The first foreign central banks completed onboarding in early October, with access available from the fourth quarter, Lane said. The changes aim to broaden the facility’s geographical reach and help central banks address euro liquidity shortages swiftly, he said.
The Eurosystem repo facility for central banks, known as EUREP, offers a maximum line of €50 billion for each central bank, Lane said. It provides loans against high-quality euro-denominated collateral, with transactions lasting from one day to one week and possible extensions, he said.
Borrowers pay the main refinancing operations rate plus a spread set by the Governing Council to preserve the facility’s backstop role, Lane said. Onboarded central banks can use the funds without advance restrictions, he said.
Lane examined how repo and swap lines support monetary policy transmission, drawing on empirical and theoretical research. His remarks cited studies dated 2021 and 2022 but gave no sample periods or numerical estimates of their findings.
Empirical evidence suggests the ECB’s liquidity lines have reduced pressures in euro funding markets, Lane said. Their availability can help prevent adverse market dynamics even without drawings, although backstop pricing means they are designed for shocks and crises, he said.
EUREP could encourage foreign central banks to hold euro-denominated debt, including longer-duration bonds, by making those securities easier to turn into cash, Lane said. Access could also support holdings of less liquid sovereign and supranational bonds, contributing to euro area bond market integration, he said.
Euro-denominated collateral requirements limit EUREP’s role where countries have euro liabilities, Lane said. Swap lines complement the facility because they can provide liquidity against local-currency collateral, he said.
Access to swap lines is associated with stronger cross-border bank credit flows, while repo access is more closely linked to securities holdings, Lane said. Swaps can therefore offer targeted support to selected partners’ banking systems, he said.
Swap lines carry greater risks and should serve central banks capable of repaying euro debt with highly rated sovereign backing, Lane said. They also require assessment to limit overreliance and moral hazard, he said.
Liquidity lines can support wider euro use in trade and borrowing, strengthening monetary policy transmission, Lane said. He said the views were his own and did not represent the Governing Council’s collective position.
