Central banks

Banks trade off short-term losses on deposits against long-term profits from cross-selling other products to new depositors. This strategy is especially attractive when policy rates are low and future sales are more valuable. Therefore, deposit rates move less than policy rates: banks keep them relatively higher when policy rates fall, and relatively lower when policy rates rise. As returns on other financial assets follow policy rates more closely, this makes deposits relatively less attractive for depositors at higher policy rates.

This Market Notice confirms that the previously announced increase to the minimum spread over Bank Rate on bids against Level A collateral in the Indexed Long-Term Repo (ILTR) operation will take effect from 17 November 2025.

David M. Arseneau, Elizabeth Klee, Antonis Kotidis, and Michael SiemerThe Bank Term Funding Program (BTFP) was an emergency liquidity facility set up by the Federal Reserve in March 2023 following the failure of Silicon Valley Bank which experienced a classic bank run driven by weak fundamentals.

This paper studies the effect of alternative monetary policy responses and the implementation of different fiscal policy measures to an inflationary shock in a monetary union, through the lens of a global DSGE model calibrated to the euro area. We find that a more aggressive monetary policy response mitigates the inflation surge, but has a detrimental impact on economic activity that imposes a stronger increase of public debt, reducing the fiscal policy space.