FRANKFURT (MNI) – Financial firms can at some point become addiced
to central bank liquidity, making it critical to keep an eye on the
amount of liquidity a central bank is providing, European Central Bank
Executive Board member Peter Praet said Wednesday.
Speaking at a Bundesbank symposium here, Praet said the
distribution of liquidity typically doesn’t matter for a central bank
but can become problematic if additional financing for a bank – or
government – “influences the incentives in terms of solvency
conditions.”
There can come a point “where banks getting liquidity at some point
become too addicted to the liquidity they get from the central bank and
mismatch their own liquidity management. So, I say, the quantity is a
very crucial thing in the management,” Praet said.
— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com —
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