## Central Bank Emergency Support to Securities Markets

_IMF Working Papers, July 10, 2017_

## Source details

**Canonical URL:** [Central Bank Emergency Support to Securities Markets](https://www.imf.org/en/publications/wp/issues/2017/07/10/central-bank-emergency-support-to-securities-markets-45012)

## Other formats

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- [Structured JSON version](/en/publications/wp/issues/2017/07/10/central-bank-emergency-support-to-securities-markets-45012/index.json)
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## Bibliographic details
- Authors: Darryl King, Kelly Eckhold, Peter Lindner, Diarmuid Murphy
- Published: July 10, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484305850.001

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### Overview and central findings
- The paper "Central Bank Emergency Support to Securities Markets" examines the central bank mandate with respect to financial stability and identifies the links to the functioning of securities markets.
- Core argument: emergency support to securities markets is an important part of the crisis management response, but a high bar should be set for its use.
- Conditional use: emergency support should be used only as part of a comprehensive policy package.
- The paper considers:
  - what types of securities markets may be important for financial stability;
  - what market conditions could trigger emergency support measures;
  - how programs can be designed to restore market functioning while minimizing moral hazard.

### Types of markets and market conditions (themes examined)
- Markets considered important for financial stability: securities markets broadly (including references to ABCP market, ABS market, Treasury bill market, commercial paper, money market mutual funds).
- Market conditions that could trigger emergency support measures:
  - severe market dysfunction that impairs price discovery and market making;
  - conditions that could lead to fire sales or widespread disruption of financing markets;
  - threats to market liquidity and market functioning that spill over to financial institutions and the broader financial system.

### Program design and moral hazard mitigation
- Design objective: restore market functioning while minimizing moral hazard.
- Program design considerations highlighted:
  - set a high bar for intervention (stringent conditions for use);
  - embed central bank support within a comprehensive policy package (complementary fiscal, regulatory, and supervisory measures implied);
  - preserve incentives for private sector risk management and continuity of market discipline.
- Roles discussed: lender-of-last-resort functions, market maker of last resort, and targeted liquidity facilities (references include money market mutual fund liquidity facility and commercial paper money market mutual fund liquidity facility).

### Policy implications and recommendations
- Emergency securities-market support should be:
  - limited and targeted to instances where market dysfunction threatens financial stability;
  - temporary and structured to restore private market functioning;
  - accompanied by measures to limit moral hazard and protect central bank balance sheets and public finances.
- Use in crisis management only when part of a comprehensive policy package, not as a stand-alone tool.

### Keywords and subject focus
- Subjects: Asset and liability management; Asset liquidity; Banking; Financial institutions; Financial markets; Financial sector policy and analysis; Financial sector stability; Liquidity; Securities; Securities markets.
- Keywords included in the paper: ABCP market; ABS market; Asset liquidity; central bank; commercial paper money market mutual fund liquidity facility; financial market; Financial sector stability; financial stability; financing market; fire sales; Global; Lender-of-last resort; liquidity; market condition; market functioning; market liquidity; market maker of last resort; market making; monetary policy; money market mutual fund liquidity facility; mutual fund; price discovery; Securities; securities dealer; Securities markets; Treasury bill market; WP.

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## Content in this bundle

- **Central Bank Emergency Support to Securities Markets, WP/17/152, July 2017**
  - [Central Bank Emergency Support to Securities Markets, WP/17/152, July 2017 (Markdown version)](/-/media/files/publications/wp/2017/wp17152.pdf.md){rel="alternate" type="text/markdown"}
  - [Central Bank Emergency Support to Securities Markets, WP/17/152, July 2017 (PDF)](/-/media/files/publications/wp/2017/wp17152.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2017/07/10/central-bank-emergency-support-to-securities-markets-45012_