Regulatory incentives and the structure of euro area money markets - Forex Factory

As the monetary policy portfolios of the European Central Bank (ECB) gradually mature, its balance sheet is shrinking. 1 Accordingly, the stock of central bank reserves held by commercial banks is declining. As aggregate reserves decline, the incentives for banks to actively trade reserves will strengthen. In this environment, the ability of the banking system to redistribute reserves efficiently and the presence of structural frictions in money markets become increasingly important for the smooth functioning of money markets and the transmission of monetary policy. Given that the ECB implements monetary policy by ... ( full story )