Coeure Says ECB Could Work With Non-Banks to Anchor Market Rates

(Bloomberg) --

The European Central Bank could consider giving non-banks access to its balance sheet to keep control over money-market rates, according to Executive Board member Benoit Coeure.

Speaking at a money-market workshop in Frankfurt, Coeure highlighted a “possible risk” that the new short-term rate called ESTR -- designed to provide a more complete picture of actual borrowing conditions -- “might be less under our control” than its predecessor EONIA in an environment of excess liquidity.

A decline in demand for liquidity by non-banks, for example, as a result of a sudden spike in risk aversion could put upward pressure on the rate, he said. At the same time, non-banks -- such as insurers and asset managers -- could sometimes be ready to pay interest rates below the ECB’s deposit rate and the rates offered by banks.

“If policy makers in the future consider the impact of changes in excess liquidity on the level of the ESTR to be less desirable, they could consider expanding access to the liability side of central bank balance sheets to other actors in financial markets,” Coeure, who is in charge of market operations at the ECB, said on Tuesday.

Coeure said the switch from EONIA to ESTR last month has highlighted how market rates are affected by who can hold central-bank reserves.

“ESTR is a better and more transparent indicator of prevailing market conditions than EONIA, as it helps deliver a more comprehensive picture of the interactive effects of our actions and policy framework,” he said.

Coeure’s term at the ECB ends this year. From Jan. 15, he’ll head the new “Innovation Hub” of the Bank for International Settlements.

To contact the reporters on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Yuko Takeo in Tokyo at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

©2019 Bloomberg L.P.