The European Central Bank’s operation was much larger than the Fed’s. Is there a reason?
The details of the European Central Bank’s (ECB) operating procedures are very different from those of the Fed, and I won’t go into the details here. Nevertheless, I can provide the simplest explanation for the size the ECB’s operation. When the ECB announced its intention to provide funds on Thursday 9 August 2007 (a day they would not normally operate at all) they said that they would accept all bids at or above the their 4 percent target. The result was that banks asked for and received €95 billion ($130 billion) on Thursday, €61 billion ($83.6 billion) on Friday, and €47.7 billion ($65.3 billion) the following Monday.10 To explain this, we need to understand two things about how bank reserves work in Europe. As it turns out, 9 August is the first day of a 35 day reserve maintenance period in the Eurosystem. As I mentioned earlier, banks hold reserves because they are required. The amount they need to hold depends (in a complicated way) on the size of deposits the bank held in the p
