The Eurosystem, the banking sector and the money market

Since October 2008, the credit granted by the Eurosystem to the Euro zone banking sector increased in a substantial way, as a result of the implementation of nonconventional measures, in particular the fact that the Eurosystem left to the banks the faculty to determine themselves the quantity of credit that they wished to obtain.

This paper first recalls the foundations of the interbank money market and then analyses the evolution of the “net liquidity needs” of the banking sector. It provided a clarification of the relation between the Eurosystem, the euro zone banking sector and the money market. In particular, it develops arguments against the myth of “idle money parked with the Eurosystem”.

Keywords: monetary policy implementation, central bank, central bank’s balance sheet, money market, liquidity deficit, excess liquidity