After the Lehman bankruptcy, banks suddenly deposited an aggregate amount of around € billion. Deposits increased since the ECB responded to the tensions in the market by accommodating the increase in banks’ demand for liquidity. 4 The extent of banks’ use of the ECB’s deposit facility is a useful indicator of the impairment of the flow of liquidity throughout the banking system, especially when the group of depositing banks is different from the group of borrowing banks. 5 A further troubling indication of the malfunctioning of money markets right after the Lehman bankruptcy came from cross-border transactions. Before the bankruptcy, cross-border transactions accounted for 60% of all unsecured overnight interbank lending. Right after the bankruptcy, this proportion dropped to 50%. A fall in the cross-border flow of liquidity indicates a fragmentation of the euro area money market along national borders and threatens the implementation of a common monetary policy throughout the euro area. The ECB reacted and succeeded in calming markets, including money markets, first by conducting two monetary policy operations with a three-year maturity, and then, most recently, by committing to remove redenomination risk in countries having signed to an ESM assistance programme (the so-called Outright Monetary Transactions, OMTs for short). For example, the share of the cross-border overnight transactions increased gradually from 30% to 50% following the OMT announcement.

Moreover, it reduces the costs for triparty repos related to collateral management, settlement and legal charges, and allows trading to be executed regardless of the location of the collateral. Non-discriminatory, risk-based access to and by market infrastructures is an important element of the new international regulatory framework. With market participants increasingly moving to central clearing, the business  15  Triparty interoperability is especially relevant for standard interbank operations/repos, which are cleared at CCPs and where CCPs use standardised baskets of eligible collateral (also referred to as general collateral (GC) baskets). 6  BIS central bankers’ speeches  case for triparty interoperability is growing. Furthermore, the new CPSS-IOSCO principles for financial market infrastructures were specifically strengthened to facilitate access and interaction between such infrastructures. Some of the key parties involved in this triparty settlement interoperability initiative have started to show signs of retreating in past months. While the ECB understands the complexity of establishing a triparty interoperability model and the substantial efforts and in particular the investment costs required to make it work, it would like to strongly urge all parties to continue to work together. Interoperability will bring important benefits – by allowing a more efficient use of collateral by bringing together separate pools of liquidity. The ECB remains ready to continue to support the triparty settlement interoperability initiative and to help bring the project forward. Concluding remarks Let me conclude. The resilience and proper functioning of market infrastructures is of paramount importance to ensure well-functioning money markets.