have not been 2 / 5 bis central bankers'speeches finalised, euro area banks are required to report leverage ratios. given the higher relative penalty given to holding sovereign bonds under the leverage ratio as opposed to the capital ratio, it is expected to increase the cost of banks ’ repo, and reduce incentives for money market arbitrage and market making. 2 reduced incentives for arbitrage and market making in turn affect market liquidity and can lead to greater periods of uncertainty. furthermore, since european banks are required to report average month - end positions, there are increasing signs of market stress at month - end dates. the leverage ratio contains provisions for netting of offsetting cash positions when they are with the same counterparty and settled through the same system. this has resulted in a much greater use of central counterparties ( ccps ). the use of ccps has been strongly supported by authorities and brings benefits in terms of smooth market functioning, as well as for individual institutions. eurosystem contacts report a wide difference in the pricing of trades cleared bilaterally and those cleared through ccps – sometimes in the tens of basis points. ccps, however, are also important for repo markets for a different reason. the increased volume of derivative trades centrally cleared at ccps due to new regulations such as emir, as well as sporadic bouts of volatility, means that those institutions tend to hold significant quantities of cash. placing that cash as unsecured deposits would represent wrong - way risk for ccps as the collapse of a significant financial institution would create significant market volatility at the same time as potentially the loss of some of the unsecured deposits. ccps are therefore increasingly large participants in the repo markets. the requirements for trades to be centrally cleared are still being introduced, so the demand from market infrastructure to exchange cash for collateral will rise. the rise in importance of ccps is indicative of the generally increasing role played by non - bank financial institutions in recent years. since these institutions do not hold accounts at the central bank, they are unable to access the deposit facility. the demand from these non - banks to find a secure place to deposit cash is a contributory factor to repo rates trading below the eurosystem ’ s deposit facility rate ( dfr ). last but not least, changes in the interbank lending market have led to increased collateral demand. in the period since the onset of the crisis, loan losses and weak profitability have constrained the availability of

- euro exchange rate to a relative qe shock that expands the ecb's balance sheet relative to that of the federal reserve by 1 percentage point over the following nine months using a sample of observations that starts during the global financial crisis in 2008. the euro immediately depreciates against the dollar, peaking at around 0. 35 percent below baseline after nine months. the depreciation is quite persistent and statistically significant up to 18 months. chart 7 impulse response to a relative ecb - federal reserve qe shock usd / eur exchange rate and time - to - lift - off ( percentages and months to lift - off ) source : dedola, l., georgiadis, g., grab, j. and mehl, a. ( 2018 ). notes : the charts presents estimates of the response of the us dollar - euro nominal bilateral exchange rate to the relative qe shock that expands the ecb balance sheet relative to that of the federal reserve. the estimates are obtained from the two - stage least squares local projection regression. the shaded area represents 90 % confidence bands based on robust standard errors. regarding the transmission channels, a qe shock that expands the ecb's balance sheet relative to that of the federal reserve works to a significant extent through the “ signalling channel ”. it persistently reduces the euro / dollar short - term money market rate differentials and shifts market expectations regarding the timing of a lift - off further into the future ( chart 7, right side ). the largest contribution, stems from the effects of qe on residual risk premia in foreign exchange markets, as is shown in chart 8 ( see the red bars ). the substantial role of risk premia echoes the evidence from classic studies that a large share of the variation in the dollar exchange rate is attributable to this residual risk premium component. qe also exacerbates limits to arbitrage in foreign exchange markets, since it widens covered interest parity deviations reflected in the cross - currency basis, but not to an economically large extent. chart 8 decomposition of exchange rate response to a relative ecb - federal reserve qe shock ( percentages ) source : dedola, l., georgiadis, g., grab, j. and mehl, a. ( 2018 ). notes : the figure presents the decomposition of the exchange rate response to a relative qe shock that increases the difference between the growth rates of the ecb '