We study the design of lender of last resort interventions and show that the provision of long-term liquidity …-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as …

strong link is present between central bank liquidity support and sovereign holdings, opportunistic strategies or reach … advantage of their higher risk-bearing capacity to gain exposure (via central bank liquidity) to the set of riskier sovereign …