Central banks

Central banks

The safe asset potential of EU-issued bonds

01/16/2023 European Central Bank Central banks

A safe asset is of high credit quality, retains its value in bad times and is traded in liquid markets. We show that bonds issued by the European Union (EU) are widely considered to be of high credit quality, and that their yield spread over German Bunds remained contained during the 2020 COVID-19 pandemic recession. Recent issuances under the EU’s SURE and NGEU initiatives helped improve EU bonds' market liquidity from previously low levels, also reducing liquidity risk premia. Eurosystem purchases and holdings of EU bonds did not impair market liquidity.

Model-based regulation: lending in times of Covid

12/20/2022 European Central Bank Central banks

When the coronavirus (COVID-19) pandemic struck, it was vital for many firms to retain access to funding from banks. In order to calculate their capital requirements, banks measure borrowers’ credit risk using either “their own”, internal ratings-based (IRB) models, or a standardised approach. This analysis examines whether model-based bank regulation constrained lending during the COVID-19 crisis. Results show that banks using their own models extended less credit than banks using a standardised approach.

Pages