This mitigates liquidity and duration risks in private sector portfolios and, given liquidity and Value at Risk constraints, reduces the required compensation for holding risky and illiquid assets. 2 As a result, the programmes encourage portfolio rebalancing and support asset prices.
The ensuing improvement in the balance sheet position of investors and banks eases leverage constraints and allows banks to extend more credit at lower costs to the private sector. 3 Better financing conditions improve growth prospects, increase profitability and mitigate default probabilities in the non-financial sector.