Monetary policy

What are standing facilities?

Standing facilities are monetary policy instruments that enable the European Central Bank (ECB) to provide or absorb overnight liquidity in the financial system. They are available to counterparties on their own initiative.

There are two types of standing facilities, which operate in opposite directions:

  1. The marginal lending facility enables banks to obtain overnight liquidity from national central banks at a rate of interest determined by the ECB. There is no limit on the amount of funds that banks may request, but to do so they must present sufficient collateral. A single marginal lending rate is set for the entire euro area, and it is the ceiling for the overnight market interest rate, as, in principle, a bank seeking financing at that term would not borrow on the interbank market if it can borrow more cheaply from the ECB (provided it has sufficient collateral).
  2. The deposit facility enables banks to make overnight deposits at the national central banks, which are remunerated at a rate of interest established by the ECB, known as the deposit facility rate (DFR). If this interest rate is negative, there is little incentive for banks to deposit their money at the central bank (see What does it mean if interest rates are negative?). There are usually no limits or other restrictions for these deposits. A single deposit facility rate is set for the entire euro area, and it is the floor for the overnight market interest rate, as a bank seeking to lend at that term on the interbank market always has the option of depositing its liquidity at the ECB.