[2] This speech builds on the recently published ECB Discussion Paper “Money Markets, Central Bank Balance Sheet and Regulation”; see Corradin, S., Eisenschmidt, J., Hoerova, M., Linzert, T., Schepens, G. and Sigaux, J.-D. (2020), “Money Markets, Central Bank Balance Sheet and Regulation”, ECB Discussion Paper No. 2483. [3] A non-bank financial institution is a financial institution that does not provide the traditional banking intermediation role, in particular it does not accept demand deposits from the public. Examples of non-bank financial institutions are investment funds, money market funds, central clearing counterparties (CCPs), insurance companies, pension funds and hedge funds. [4] There are several channels through which money market conditions affect lending conditions. For example, the conference paper by Corbae and Gofman (2019) points out one novel channel, namely that interbank markets provide a channel for banks to collude in the market for business loans; see Corbae, D and Gofman, M. (2020). “Interbank Trading, Collusion, and Financial Regulation”, Working Paper. Altavilla, Carboni, Lenza, and Uhlig (2019) document that the cross-sectional dispersion in unsecured interbank money market rates significantly raises lending rates banks charge to firms, with a peak effect of around 100 basis points during the global financial crisis and the euro area sovereign debt crisis; see Altavilla, C., Carboni, G., Lenza, M. and Uhlig, H. (2019), “Interbank Rate Uncertainty and Bank Lending,” ECB Working Paper No 2311. [5] See Heider, F., Hoerova, M. and Holthausen, C. (2015), “Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk”, Journal of Financial Economics, 118(2), pp. 336-354.

Indeed, banks’ additional mobilisation of government bonds as Eurosystem collateral currently appears to be relatively small when compared to other asset classes, especially non-marketable additional credit claims. [27] Quarter-end effects have diminished in recent years, owing in part to improvements in euro area banks’ leverage ratios. For a discussion of the effects of regulation on money market volumes, rates and dispersion, including the analysis of quarter-end effects, see Corradin et al (2020), op. cit. [28] Correa, R., Du, W. and Liao, G. (2020), “U.S. Banks and Global Liquidity,” Working Paper. [29] By effectively lowering the cost of holding central bank reserves, the temporary exclusion of central bank reserve holdings from the leverage ratio contributes on the regulatory front to the mitigation of the impact of negative rates on bank profitability, complementing the effect of the two-tier system and the more favourable TLTRO borrowing rate on the monetary policy front. The press release announcing the temporary relief is available here. 23 November 2020  Slides Related topics  Coronavirus  Financial crisis  Monetary policy Banking sector  Policies  Collateral  Liquidity  Disclaimer Please note that related topic tags are currently available for selected content only. European Central Bank Directorate General Communications Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany Tel. : +49 69 1344 7455, email: media@ecb.europa.eu Website: www.ecb.europa.eu Reproduction is permitted provided that the source is acknowledged.  Media contacts  Copyright 2020, European Central Bank  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html  7/7