This paper analyses the potential roles of bank asset fire sales and recourse to central bank credit to ensure banks' funding, liquidity and insolvency.The paper explains why banks tend to use the least liquid eligible assets as central bank collateral and why a sudden non-anticipated reduction of asset liquidity, or a tightening of the collateral framework, can stabilise short-term liabilities of banks.
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European Central Bank publishes working paper in relation to central bank collateral, asset fire sales regulation and liquidity
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