A distinguishing feature of the ECB's monetary policy setup is the preannouncement of a minimum bid rate in its weekly repo auctions. However, whenever interest rates are expected to decline, the minimum bid rate is viewed as too high and banks refrain from bidding, severely impeding the ECB's...

In the general perception, financial institutions' immense repo and derivatives portfolios are friends and foes alike: friends, because they provide for levels of market liquidity that would be unimaginable without them. Foes, because both types of transactions are somehow regarded as being...