Open market policy

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The open market is an instrument of monetary through which the central bank , commercial banks with liquidity supplied. The central bank buys securities directly from the commercial banks or via the stock exchange.

If a commercial bank sells securities to the central bank, in return ( asset swap ) it is credited with central bank money that it can use to meet its reserve requirements . If the central bank sells securities to commercial banks, this reduces their account balances with the respective central bank.

Open market operations can be differentiated in particular according to the choice of open market instruments (e.g. fixed-term transactions , foreign exchange swaps , final purchases), the term of the instruments, the execution procedure, the execution rhythm (regular or irregular) and the allocation procedure.

In the open market operations, the so-called time-limited transactions dominate, i.e. credit transactions in which the central bank buys collateral eligible for a central bank under short-term repurchase agreements at variable interest rates . These main refinancing transactions ( main tenders ) take the form of repurchase agreements or pawns . In the case of repurchase agreements, the collateral (usually securities) is transferred from the commercial banks to the central bank according to the term up to the repurchase agreement (also given in "pensions"). In return, the commercial bank receives liquid funds in the form of central bank money (secondary liquidity). In the case of mortgage loans, the collateral remains the property of the banks.

Further open market operations are longer-term refinancing operations ( basic tenders ), fine-tuning operations and other structural operations.

The methods for the initial placement of securities by means of tenders are divided into volume and variable rate tenders ("tender" = tender ) ( allocation procedure ). The (administrative) implementation procedures differ in standard or quick tender procedures and in other bilateral transactions.

Open market policy emerged in the USA and England after the First World War ; in Germany this was only possible from October 1933.

Open market operations of the European Central Bank (ECB)

Open market operations are the most important instruments of the ECB and form the core of the monetary policy of the European System of Central Banks (ESCB) . They serve to control interest rates, the liquidity situation and to show the monetary policy course. Through the open market operations, the commercial banks receive the majority of their money against the pledging of collateral (e.g. securities). Open market operations are carried out either by decision of the Governing Council or by the national central banks themselves.

Main tender

The main tender is the main refinancing business of the credit institutions , which is carried out every week with i. d. Usually a one week term (until the beginning of 2004 two weeks term) is offered by the ECB. The tender is carried out by the national central banks. It has a certain signaling effect for banks. With the justification of a high financing requirement of the banks at the end of 2007, the ECB initially increased the term once again to two weeks on December 19, 2007. The reason for this was on the one hand the interest rates on ECB money, which rose to 4.8%, and the fact that banks have hardly borrowed any money from one another due to the banking crisis. This extension led to a rate cut on the money market in advance.

Basic tender

Fine control operations

Fine-tuning operations serve to provide liquidity or to absorb liquidity in order to counteract unexpected changes in bank liquidity and thus prevent excessive interest rate fluctuations on the money market. The implementation route is based on the quick tender procedure or through bilateral transactions .

Implementation procedure

Standard tender

The standard tender is a tender procedure used in the Eurosystem that, unlike the quick tender, is carried out within 24 hours. The standard tender can be carried out both as a quantity tender and as a variable rate tender. It is commonly used in main refinancing transactions (main tenders) and longer-term refinancing transactions (base tenders).

Quick tender

In order to be able to compensate for fluctuations in liquidity quickly, there is the quick tender , which is one of the fine-tuning operations of the ECB. This is a tendering process for fine-tuning monetary policy. Such a transaction is processed and the money is allocated within 1–2 hours and is often carried out with a limited number of credit institutions. With this tender, money can be withdrawn from or added to the market. It only takes place when necessary. The allocation can be limited to certain business partners.

Allocation process of central bank money

As of January 1, 1999, the ECB initially carried out a fixed rate tender procedure for the allocation, but switched to the fixed rate tender procedure on June 27, 2000 due to the overbid problem. In October 2008, in the wake of the financial crisis , the ECB switched to the fixed-rate tender procedure again.

Bulk tender

With the fixed rate tender procedure, the interest rate for offered central bank money is fixed. The commercial banks make bids for the desired amounts of money they want to purchase. The allocation quota is calculated by relating the total intended allocation volume to the total offer amount. The problem with volume tenders is that, because of the low interest rate, commercial banks tend to submit higher volume bids than they actually need (overbid problem). In the subsequent apportionment (pro-rata allocation), also scaling down called, then perform better.

Variable rate tenders

The central bank can use the variable rate tender process to conduct its open market operations. The central bank specifies the amount of money to be issued and also sets a minimum bid rate, i.e. the minimum interest rate at which it conducts open market transactions (as a signal for the monetary policy course).

The commercial banks then submit their interest bids.

The allocation of central bank money takes place after the end of the bids:

  • In the American process, all bidders in the tender process are served at the interest rate at which they have bid. The lowest interest rate at which a (partial) allocation is still made is the marginal interest rate. The individual bids at the marginal interest rate are reduced in relation to the cumulative bid - this is called repair. In this procedure, the banks with the highest interest rates are awarded the contract, i. H. the money flows to the banks that need it most (introduction of a market component )
  • In the Dutch procedure, all eligible bidders are paid at the marginal interest rate (interest rate at which the cumulative bids are greater than the intended allotment amount). As with the fixed rate tender, the banks often submitted disproportionately low interest rates (they only had to pay the marginal interest rate).

The ECB used the American variable rate tender procedure. In the course of the financial crisis , however, it switched to the quantity tender procedure with full allotment. The transaction takes place via OMTOS (Open Market Tender Operations System).

See also

Further monetary policy instruments from central banks:

Others:

Individual evidence

  1. ^ Deutsche Bundesbank: Minimum reserve and open market operations ( Memento of July 29, 2013 in the Internet Archive ) (PDF) p. 175, p. 178. Retrieved on March 15, 2013.
  2. ↑ Bodo K. Spiethoff: To the history of the economy and the science. In: Handbuch für Sozialkunde, Volume 1 , p. 36.
  3. ↑ NZZ - December 1, ECB doubles the term of the tender business
  4. ↑ Bankazubis.de: The instruments of monetary policy . Retrieved July 15, 2010.
  5. ↑ http://www.ecb.eu/press/pr/date/2008/html/pr081008_2.de.html
  6. ↑ Archived copy ( Memento from September 18, 2010 in the Internet Archive )

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