Win Monroe
@winmonroe.bsky.social
Another economist.
Views and bad hot takes are my own, if even that.
Likes & RTs =/= endorsements.
Views and bad hot takes are my own, if even that.
Likes & RTs =/= endorsements.
Thanks for reading!
If you want to learn more, check out the working paper here:
www.bankofengland.co.uk/working-pape...
If you want to learn more, check out the working paper here:
www.bankofengland.co.uk/working-pape...
A public-private partnership? Central bank funding and credit supply
Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
www.bankofengland.co.uk
December 9, 2025 at 5:42 PM
Thanks for reading!
If you want to learn more, check out the working paper here:
www.bankofengland.co.uk/working-pape...
If you want to learn more, check out the working paper here:
www.bankofengland.co.uk/working-pape...
which is likely to strengthen the equilibrium effect and hence allow the central bank to support credit provision without taking risk onto its own balance sheet. However, this also weakens the central bank’s ability to use the scheme to target specific sectors.
December 9, 2025 at 5:42 PM
which is likely to strengthen the equilibrium effect and hence allow the central bank to support credit provision without taking risk onto its own balance sheet. However, this also weakens the central bank’s ability to use the scheme to target specific sectors.
behavior consistent with conditionality binding.
Together, these results suggest that conditionality matters, and that there is a trade-off in the design of central bank funding schemes. Looser conditionality makes central bank funding a closer substitute to private funding,
Together, these results suggest that conditionality matters, and that there is a trade-off in the design of central bank funding schemes. Looser conditionality makes central bank funding a closer substitute to private funding,
December 9, 2025 at 5:42 PM
behavior consistent with conditionality binding.
Together, these results suggest that conditionality matters, and that there is a trade-off in the design of central bank funding schemes. Looser conditionality makes central bank funding a closer substitute to private funding,
Together, these results suggest that conditionality matters, and that there is a trade-off in the design of central bank funding schemes. Looser conditionality makes central bank funding a closer substitute to private funding,
First, when the program was extended, it temporarily unlocked unconditional funding. Second, the program was later amended to focus on corporate lending and excluded mortgages. Banks reduce rates when lending counts for unconditional funding and before mortgages were excluded,
December 9, 2025 at 5:42 PM
First, when the program was extended, it temporarily unlocked unconditional funding. Second, the program was later amended to focus on corporate lending and excluded mortgages. Banks reduce rates when lending counts for unconditional funding and before mortgages were excluded,
ability to deploy it as they wish. Our setting provides an ideal laboratory to test this idea because conditionality was a central innovation behind the FLS, and because subsequent changes to the program created two important shocks to the reach of this conditionality.
December 9, 2025 at 5:42 PM
ability to deploy it as they wish. Our setting provides an ideal laboratory to test this idea because conditionality was a central innovation behind the FLS, and because subsequent changes to the program created two important shocks to the reach of this conditionality.
In addition to indirectly benefiting from central bank funding, the equilibrium effect could also allow banks to avoid any non-pecuniary costs associated with using this funding directly. One such cost is that the conditions attached to central bank funding might constrain banks’
December 9, 2025 at 5:42 PM
In addition to indirectly benefiting from central bank funding, the equilibrium effect could also allow banks to avoid any non-pecuniary costs associated with using this funding directly. One such cost is that the conditions attached to central bank funding might constrain banks’
Also in line with this idea, the equilibrium effect weakens when a second FLS funding scheme is announced, at a time when wholesale funding stress has subsided.
December 9, 2025 at 5:42 PM
Also in line with this idea, the equilibrium effect weakens when a second FLS funding scheme is announced, at a time when wholesale funding stress has subsided.
We find that the equilibrium effect is driven by banks’ exposure to short-term wholesale funding (which creates more funding risk) rather than long-term wholesale funding (which is a closer substitute for FLS funding).
December 9, 2025 at 5:42 PM
We find that the equilibrium effect is driven by banks’ exposure to short-term wholesale funding (which creates more funding risk) rather than long-term wholesale funding (which is a closer substitute for FLS funding).
Alternatively, this central bank funding backstop could lower banks’ funding liquidity risk, leading to a reduction in the risk premia charged by private wholesale lenders. Our results are consistent with this second hypothesis.
December 9, 2025 at 5:42 PM
Alternatively, this central bank funding backstop could lower banks’ funding liquidity risk, leading to a reduction in the risk premia charged by private wholesale lenders. Our results are consistent with this second hypothesis.
Why does the FLS announcement reduce private wholesale funding costs? One possibility is that having access to an outside option to borrow from the central bank increases banks’ bargaining power in private funding markets.
December 9, 2025 at 5:42 PM
Why does the FLS announcement reduce private wholesale funding costs? One possibility is that having access to an outside option to borrow from the central bank increases banks’ bargaining power in private funding markets.
After the FLS announcement, banks with a higher exposure to wholesale funding charge lower mortgage rates – *regardless of whether they draw on the FLS itself.* In fact, we find the aggregate impact on mortgage rates is larger than the impact from direct participation in the FLS.
December 9, 2025 at 5:42 PM
After the FLS announcement, banks with a higher exposure to wholesale funding charge lower mortgage rates – *regardless of whether they draw on the FLS itself.* In fact, we find the aggregate impact on mortgage rates is larger than the impact from direct participation in the FLS.
To identify the equilibrium effect, we run loan-level difference-in-differences regressions, where we exploit predetermined heterogeneities in wholesale funding reliance while controlling for confounding trends with rich fixed effects and a host of controls.
December 9, 2025 at 5:42 PM
To identify the equilibrium effect, we run loan-level difference-in-differences regressions, where we exploit predetermined heterogeneities in wholesale funding reliance while controlling for confounding trends with rich fixed effects and a host of controls.
The mere availability of central bank funding improves private wholesale funding conditions, thus supporting lending without central bank funding being used.
December 9, 2025 at 5:42 PM
The mere availability of central bank funding improves private wholesale funding conditions, thus supporting lending without central bank funding being used.
These banks then need to borrow less from the FLS. Consistent with the idea that the availability of central bank funding helps to rejuvenate private markets, measures of banks’ wholesale funding costs fell sharply after the FLS was announced.
December 9, 2025 at 5:42 PM
These banks then need to borrow less from the FLS. Consistent with the idea that the availability of central bank funding helps to rejuvenate private markets, measures of banks’ wholesale funding costs fell sharply after the FLS was announced.
This raises the possibility of a complementarity between central bank funding and private funding: the availability of central bank funding rejuvenates wholesale funding markets, and this disproportionately benefits banks more reliant on wholesale funding.
December 9, 2025 at 5:42 PM
This raises the possibility of a complementarity between central bank funding and private funding: the availability of central bank funding rejuvenates wholesale funding markets, and this disproportionately benefits banks more reliant on wholesale funding.
We start by examining the drivers of participation in the FLS. If FLS funding is primarily a substitute for wholesale funding, banks more exposed to stressed wholesale funding markets should borrow more from the scheme. We observe the exact opposite.
December 9, 2025 at 5:42 PM
We start by examining the drivers of participation in the FLS. If FLS funding is primarily a substitute for wholesale funding, banks more exposed to stressed wholesale funding markets should borrow more from the scheme. We observe the exact opposite.
condition that they expand lending to the real economy, a design feature that was subsequently adopted by the ECB’s Targeted Long-Term Refinancing Operations.
December 9, 2025 at 5:42 PM
condition that they expand lending to the real economy, a design feature that was subsequently adopted by the ECB’s Targeted Long-Term Refinancing Operations.
To study these questions, we exploit the surprise announcement of the Bank of Englands (BoE) Funding for Lending Scheme (FLS), which was launched in 2012 in response to stress in wholesale funding markets during the eurozone debt crisis and provided low cost funds to banks on the
December 9, 2025 at 5:42 PM
To study these questions, we exploit the surprise announcement of the Bank of Englands (BoE) Funding for Lending Scheme (FLS), which was launched in 2012 in response to stress in wholesale funding markets during the eurozone debt crisis and provided low cost funds to banks on the
This “equilibrium” effect makes central bank funding more powerful than previously thought. Finally, we also show that central bank funding which comes with “strings attached” can help to explain why it is an imperfect substitute for private funding.
December 9, 2025 at 5:42 PM
This “equilibrium” effect makes central bank funding more powerful than previously thought. Finally, we also show that central bank funding which comes with “strings attached” can help to explain why it is an imperfect substitute for private funding.
We study this question & show that central bank and private funding can actually be *complements* not solely substitutes. The mere availability of central bank funding improves private wholesale funding conditions, thus supporting lending without central bank funding actually being used.
December 9, 2025 at 5:42 PM
We study this question & show that central bank and private funding can actually be *complements* not solely substitutes. The mere availability of central bank funding improves private wholesale funding conditions, thus supporting lending without central bank funding actually being used.
Large-scale provision of long-term funding to banks has become an important central bank tool to support credit supply during downturns. However, scholars have worried that allowing banks to rely on public funding could create moral hazard and crowd out private funding.
December 9, 2025 at 5:42 PM
Large-scale provision of long-term funding to banks has become an important central bank tool to support credit supply during downturns. However, scholars have worried that allowing banks to rely on public funding could create moral hazard and crowd out private funding.
Nah, got him half price
December 9, 2025 at 2:36 PM
Nah, got him half price