The rationale for or against expanding central bank eligible collateral in times of distress

摘要

The current crisis is testing the capacity of policy makers to give adequate answersto the possibility of a major financial meltdown. The crisis began in the subprimesector, a relatively small segment of the mortgage industry. It is thanks to aninsufficiently regulated system of financial innovations that it spread to the balancesheets of all financial institutions around the world. The briefing paper does notdeal with the issue of what regulatory framework we should design. It ratherfocuses on the short run policy response to the crisis. I will conclude that most ofthe burden in this specific moment falls on fiscal policy, monetary policy havingreached a liquidity trap situation. Nevertheless, monetary policy still has animportant role (that it played already in the past months) in providing liquidity tothe markets, and in facilitating the task of fiscal policy. In this perspective, I agreewith Anne Sibert’s BP of March 2008, in considering appropriate a widerdefinition of acceptable collateral, to include also “troubled assets”. This should bedone in the short run, though, and a number of medium term consequences, notablyon the coordination between strictly interconnected fiscal and monetary policies,should be evaluated.