Document Type

Article

Publication Title

International Journal of Finance and Economics

Publication Date

10-1-2022

Abstract

We examine the role and the efficiency of the emergency liquidity assistance (ELA) tool in the Euro area which has been used to confront the contagion in the banking sector and the illiquid financial market conditions. We study four European countries (Belgium, Cyprus, Greece, and Ireland), which have received substantial ELA since the 2008 financial crisis. Through Bayesian VAR models, we seek to determine the effectiveness of national central bank lending, which includes the amount of ELA received by the domestic banking sector, an assessment of the direct effect of ELA on banks' liquidity and lending through deposits thus allowing banks to supply loans. In general, we find that the ELA tool was very effective in alleviating financial strains in these countries' central banks. For the Greek case, in particular, our findings indicate that the ELA was influenced not only from any changes in bank deposits but also from changes in the spread between the 10–year Greek and German government bond yields. Finally, the volume of non-performing loans in Greek banks was declining to capital injections to banks as their capital base was continually being restored through the ELA mechanism.

Volume

27

Issue

4

First Page

4142

Last Page

4153

DOI

10.1002/ijfe.2363

ISSN

10769307

E-ISSN

10991158

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