The European Central Bank (ECB) is ready to save from crisis the whole world through a new lending facility of the Central banks outside the Eurozone, EUREP, said in a statement on the regulator’s website.
The EUREP programme involves the granting of loans via repo transactions — the acquisition by the lender of the securities owned by the borrower, with the obligation of their subsequent sale at a higher price. Paper in fact serve as collateral, but a formal right of ownership of them passes to the lender. The difference between the amounts of the two parts of the transaction is a charge for the loan.
In the release on the ECB website notes that EUREP allows a wide range of Central banks to borrow in euros. Collateral will be government bonds of the Eurozone countries are denominated in euros. It is assumed that the funds provided will help to “provide the necessary liquidity in the Euro in case of violation of functioning of the market because of the shock” caused by the pandemic coronavirus.
The received means Central banks can use to provide to commercial banks in their countries that are experiencing difficulties servicing its obligations in Euro. In addition, funds can be lent out by banks such what will stimulate the economy of the countries outside the Eurozone.
The program will last until June 2021. It would complement the existing bilateral repurchase agreements between the ECB and Central banks of other countries, as well as a swap line from the European regulator, in which the collateral is currency.
In the spring, the ECB launched quantitative easing (QE), under which buys government and corporate bonds from commercial banks of the Eurozone countries. Received by banks go on lending to the economy also increased the demand for paper helps to reduce their profitability, and with it the level of interest rates in the market.
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