[5] The expansion of central bank liquidity provision during and after the global financial crisis substituted for impaired markets and thereby further reduced the need of market participants to rely on money markets for their liquidity. Instead, a substantial part of money market transactions in recent years has been driven by the demand for specific types of collateral. [6] Additionally, as a result of changes in the regulatory environment, unsecured money market transactions have become more costly in terms of bank capital and liquidity requirements. [7] This development has reinforced the shift towards secured money market transactions. Another trend is the marked shift in the types of counterparties involved in money market transactions. An increasing share of trades is cleared through central counterparties (CCPs) (right-hand side of Slide 1). CCPs mitigate counterparty risk and reduce the reliance on costly collateral by providing netting services. [8] They have been an integral part of the policy response to the shortcomings uncovered by the global  financial crisis. Beyond the use of CCPs, the share of transactions between banks and non-banks has gradually increased, whereas banks have lower incentives to transact with each other in the current environment of abundant central bank liquidity. These trends likely contributed to the relative resilience of short-term money markets since the onset of the COVID-19 pandemic. Secured transactions, a majority of which are cleared by CCPs, have been much less affected by the tensions in the spring than unsecured trades.

Central bank liquidity provision This brings me to the second factor, namely central bank liquidity provision, which influences the effective pass-through of monetary policy decisions to money market rates and financing conditions more broadly. The relation between excess liquidity and overnight money market rate dispersion has also changed since the global financial crisis. Prior to 2015, higher levels of excess liquidity tended to lower the dispersion of money market rates (Slide 6). After 2015, increases in dispersion also occurred in periods of ample and rising excess liquidity. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html  3/7  24/11/2020  Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic  There are several reasons for this changing relationship. Prior to 2015, central bank liquidity provision and the associated Eurosystem balance sheet expansion were driven by the need to restore an impaired monetary policy transmission mechanism, caused by heightened market stress during the financial and sovereign debt crises. During the global financial crisis, when the unsecured interbank market came under stress, banks turned to the central bank to obtain liquidity. The Eurosystem essentially assumed the liquidity-providing role of the private market. During the sovereign debt crisis in the euro area, banks once again increased their demand for central bank liquidity. The provision of central bank liquidity also stimulated the supply of liquidity in the private market, especially to banks located in the periphery. [16] The optimal design of central bank liquidity policies is an important research question, which is examined in the conference paper by Robatto (2020).