A core feature of this crisis has been not only the central importance of domestic liquidity provision by central banks, but also its complementary cross-border dimension, that is, the network of temporary currency swaps or repos set up bilaterally by major central banks such as the ECB and the Federal Reserve, which has involved many other central banks in the world.
In this context, the behavior of banks influences the economy significantly, regardless of the share of the banking sector in financial intermediation. During a period of interest rate reduction, for example, expansions in maturity mismatches and increases in asset prices are observed on a bank’s balance sheet.