Unconventional Monetary Policy Measures 

Session 6: Non-conventional monetary policy, macroprudential policies angovernment debt

Henner Asche, Deutsche BundesbankDeputy Head of Markets Department

government debt
Unconventional monetary policy measures –

Comparison

U ti l nconventional M t one

tary P li o cy

Measure EUS

1a Extended period of very low interest rates X 

1b Forward guidance on interest rates

2 Provision of longer-term liquidity X 

3 Purchases of government securities X 

4a P rchases P

urchases of co ered co

vered bonds

X

4b Purchases of asset-backed securities (including MBS) 4c Purchases of non-financial corporate debt 4d Purchases of other assets (agency debt, ETFs, REITs, CP etc.) 

20 June 2013Seite 2Henner Asche
Selected unconventional monetary policy measur

ECB’s objectives

❙ General approach: appropriate measures depend on structure 

❙ In the euro area, the role of banks is more import

(about two thirds of financial financial intermediation intermediation via banking banking systeUS).

❙ Provision o

f lon

ger-term li

q y uidit

y; covered bond

p g ro

grams

❙ Maintain sufficient bank intermediation and provide longer-t

times of stressed funding markets (prevent forced deleverasustain key bank funding channel.

❙ Government bond purchase program SMP

❙ Address malfunctioning of securities markets and safeguard 

policy t ii ransmission mech i an sm.

❙ Government bond purchase program OMT

❙ Safeguard Safeguard appropriate appropriate monetary monetary policy transmission transmission and s

s

policy; elimination of “redenomination risk”, the unwarranted euro breakup.

Seite 3Henner Asche20 June 2013
Unconventional monetary policy measures –

Selected risks

❙ Impact of sustained low interest rates

❙ Banks have incentives to delay balance sheet restructuring

❙ Reduced pressure on authorities to implement rigorous bank ❙ Market functioning distortions (in particular allocation function

❙ Im

pact o

f asset

p , urchases, provision o

f lon

ger-term li

q y uidit

y

❙ Large increase of bank liquidity could cause banks’ addiction ❙ Bank balance sheet restructuring and restoration of interbank ❙ Shift of credit risk away from private private sector into books of cent

cent

tax payer

❙ Market functioning distortions, drying-up of markets, lack of go

❙ Exit risks

❙ Increased credit risk for banks (impact of higher interes

“available for sale” fixed rate securities due to rising interest ra

❙ Bank funding funding challenges challenges, reduction reduction of excess liquidity liquidity par

par

vulnerable banks

❙ Underlying structural issues must be addressed by market pa

Seite 4Henner Asche20 June 2013
Unconventional monetary policy measures –

Liquidity in euro area government bond markets (

121416

Italy - 

10-Year Government BondsSource: Bloomberg.

SMP1

(off.)

SM

(of

8

1012 ( ) ( 

16

Spain - BidA

s

k

Spread

*

10-Year Government Bonds;S Bl b

3Y OMT

( hi

246

Average spread +/- 1STD

101214 Source:

Bloo

mberg.

SMP1

(off.)

SMP2

(off.)

LTRO

(off.)

(Draghi,

London)

0

Jan 10 Jul 10 Jan 11 Ju

468

Average spread +/- 1STD

140160

Portuga

10-Year Government BonSource: Bloomberg

02

Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 100

120140 Source: Bloomberg.

SMP1

(off.)

SM

(o

406080

Average spread +/- 1STD

Seite 5Henner Asche20 June 2013 0

20

Jan 10 Jul 10 Jan 11 Ju
Unconventional monetary policy measures –

Liquidity in euro area government bond markets (

56

France - BidA

s

k

Spread

*

10-Year Government Bonds;Source: Bloomberg.

SMP1 SMP2

3Y

LTRO

(off.) OMT (Draghi,

34

(off.) (off.) London)

12 Average spread +/- 1STD0

Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13

6

Germany - BidA

s

k

Spread

*

SMP1

(off.)

SMP2

(off.)

345 3Y

LTRO

(off.)

OMT

(Draghi,

London)

123

10-Year Government Bonds;Source: Bloomberg.

Average spread +/ 1ST

D

Seite 6Henner Asche20 June 2013 0

Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13

Average spread +/- 1ST

D
Final remarks ...

It is not the task of the ECB to whole system. Governments hon a mech i an sm to grant loans

subject to strict conditionality, cooperation with the IMF (...)

Lorenzo Bini-Smaghi, Member of the Executive Board Interview with Interview with Börsen-Zeitung Zeitung, 

published on 20 May 2010.

Seite 7Henner Asche20 June 2013