Just guessing, but maybe it is because the ECB has a single mandate (price stability), while the Fed Reserve has a so-called dual mandate: price stability and maximum employment. So, as long as inflationary pressures seem very moderate, the Fed is trying to be as accomodative to economic growth as possible. (Check out the charts at the link; they are quite interesting, esp. the one at the bottom)

I was interested in the projection plot, but now that you mention it, the other one does look like a phase transition!

I had a question regarding the usage of the Main Refinancing Operation by banks. If I am a bank (probably Cypriot / Greek bank), what stops me from borrowing more than I need through the Main Refinancing Operation (at 0.5%) instead of going for the Marginal Lending Facility (at 1.0%) mid-week? Are there any checks & balances in place?

collateral

QuoteOriginally posted by: acastaldocollateralBut collateral is required for borrowing under the Marginal Lending Facility as well.

QuoteOriginally posted by: AllEarsI had a question regarding the usage of the Main Refinancing Operation by banks. If I am a bank (probably Cypriot / Greek bank), what stops me from borrowing more than I need through the Main Refinancing Operation (at 0.5%) instead of going for the Marginal Lending Facility (at 1.0%) mid-week? Are there any checks & balances in place?Nothing is stopping you... Borrow away to your heart's content.

QuoteOriginally posted by: outrunCan anyone help me explain why the ECB Main Refinancing Rate is at 0.75 -*way* above EONIA- wheras the Federal Funds Target Rate and the Bank of England Official Bank Rate are much more in line the FED rate and SONIA (just slightly above them)?To offer a belated answer to this... All these O/N rates are really a function of supply and demand. In EUR, supply is so abundant as to make the refi rate all but irrelevant.

QuoteOriginally posted by: MartinghoulQuoteOriginally posted by: AllEarsI had a question regarding the usage of the Main Refinancing Operation by banks. If I am a bank (probably Cypriot / Greek bank), what stops me from borrowing more than I need through the Main Refinancing Operation (at 0.5%) instead of going for the Marginal Lending Facility (at 1.0%) mid-week? Are there any checks & balances in place?Nothing is stopping you... Borrow away to your heart's content.But then when would the Marginal Lending Facility get used? Seems to me like you can borrow cheaper for longer through MRO compared to the Marginal Lending Facility. Am I missing something obvious here?

QuoteOriginally posted by: AllEarsQuoteOriginally posted by: MartinghoulQuoteOriginally posted by: AllEarsI had a question regarding the usage of the Main Refinancing Operation by banks. If I am a bank (probably Cypriot / Greek bank), what stops me from borrowing more than I need through the Main Refinancing Operation (at 0.5%) instead of going for the Marginal Lending Facility (at 1.0%) mid-week? Are there any checks & balances in place?Nothing is stopping you... Borrow away to your heart's content.But then when would the Marginal Lending Facility get used? Seems to me like you can borrow cheaper for longer through MRO compared to the Marginal Lending Facility. Am I missing something obvious here?It gets used when people need to square up their reserve requirement arnd month end. So, as intended, it normally acts as a source of very short-term "emergency" liquidity. Occasionally, it also gets used for longer periods in extra special, exigent circumstances, such as, for instance, during the end of 2011 mini-Eurogeddon (Dexia was the culprit then) or the early 2011 windup of Irish banks.

Hi everybody.Even if i am late i would like to provide my small contribution to this useful community.According to my point of view, Eonia is trading much lower wrt Sonia mainly because of 2 reasons:1)Excess liquidity in the EU system (read it as LTROs): more liquidity less cost to get it2)Banks panel participating into the daily fixing: higher standing lower cost of financing.This one is not the case in UK.On the other hand, banks prefer to fund on the interbank mkt rather than to a central bank mainly due to reputation's cost. There are different MRO depending on maturities and currencies, but asking for money to the last resort it is not always a good sign even if it should guarantee anonymity. Moreover, as acastaldo and Martinghoul stated there is also a cost related to the collateral and to the contingent moment (usually the quarter or half year and/or some fiscal dues as it was the case at the the end of may). Do not exclude the fact that a good amount of refinancing was made through out the 2 LTROs with 3 uyears maturity and the actual lvl of repayment is really low. I hope it could help you more.Pano

QuoteOriginally posted by: MartinghoulIt gets used when people need to square up their reserve requirement arnd month end. So, as intended, it normally acts as a source of very short-term "emergency" liquidity. I agree with "month-end" logic. Why pay 0.5%*7/365 to borrow for a week when you can pay just 1.0%/365 on the day you need the liquidity.QuoteOriginally posted by: MartinghoulOccasionally, it also gets used for longer periods in extra special, exigent circumstances, such as, for instance, during the end of 2011 mini-Eurogeddon (Dexia was the culprit then) or the early 2011 windup of Irish banks.But for longer periods, why not use the MRO money at 0.5%?Going for Marginal Lending Facility (MLF) would have made sense if the refi was the minimum bid amount (as it was prior to Oct 2008). In such a case, banks needing higher amounts of liquidity would bid higher and would thus push the effective rate closer to the MLF rate. However, MRO funds are now made availabe at a fixed rate (refi). Also, there doesn't seem to be any stigma associated with MRO rates. So, it beats me why any bank would use MLF for longer durations.

QuoteOriginally posted by: PanoramixHi everybody.On the other hand, banks prefer to fund on the interbank mkt rather than to a central bank mainly due to reputation's cost. There are different MRO depending on maturities and currencies, but asking for money to the last resort it is not always a good sign even if it should guarantee anonymity. Moreover, as acastaldo and Martinghoul stated there is also a cost related to the collateral and to the contingent moment (usually the quarter or half year and/or some fiscal dues as it was the case at the the end of may). Do not exclude the fact that a good amount of refinancing was made through out the 2 LTROs with 3 uyears maturity and the actual lvl of repayment is really low. I hope it could help you more.PanoThanks for the insight Pano.But there doesn't seem to be any difference on the impact on reputation when borrowing through MRO or through MLF as both come from the ECB. If anything, MLF is similar to the Fed Discount Window and might have a higher impact on reputation than MRO. Also, both require collateral to be posted with the ECB. In such circumstances why would any bank not use MRO instead of MLF, especially for longer tenors?

QuoteOriginally posted by: AllEarsBut for longer periods, why not use the MRO money at 0.5%?Going for Marginal Lending Facility (MLF) would have made sense if the refi was the minimum bid amount (as it was prior to Oct 2008). In such a case, banks needing higher amounts of liquidity would bid higher and would thus push the effective rate closer to the MLF rate. However, MRO funds are now made availabe at a fixed rate (refi). Also, there doesn't seem to be any stigma associated with MRO rates. So, it beats me why any bank would use MLF for longer durations.Yes and, therefore, like I said in my previous post, banks don't use the MLF for longer durations, unless there's some sort of a special pressing need to do so (other than month/quarter/year-end).