Euro-area bond-market volatility has renewed debate over which tools could keep
markets functioning in a wider crisis, with some analysts flagging the ECB’s
repo operations—banks obtaining cash by pledging collateral—as a contingency
liquidity source if conditions tighten. The ECB’s main refinancing operation
(MRO) was not designed as a crisis facility and take-up has been low because
market funding is often cheaper. Although market liquidity is still ample, banks
may avoid the MRO due to stigma; analysts advise the ECB to consider lowering
MRO financing costs, as the Bank of England has done, to make the tool more
attractive and reduce that stigma.
