Therefore, if purchases of government bonds were to reduce banks’ opportunity cost of lending by lowering the return of other alternative investments, this might create the incentives for banks to extend credit to the private sector, in particular if banks regain confidence and start to reappraise the macroeconomic outlook as a result of central bank action.
In addition, our presence as a buyer in the ABS and covered bond markets eases potential balance sheet capacity and liquidity concerns that go along with an increase in credit supply. A precondition for these channels to unleash their full effects is a healthy banking system.