The availability of collateral and the perception of market participants of the quality of the collateral itself influence the spreads prevailing in money markets, beyond the overnight rate at which central banks lend funds to the banking system.
The money markets and their spreads are in turn crucial in determining whether the monetary policy impulses can be transmitted easily or not, and whether the transactions in money markets are surrounded by uncertainty or take place smoothly. It is in this context that the Securities Markets Programme (SMP) implemented by the European Central Bank has to be assessed.