By purchasing this type of long-maturity assets, we intervene directly on medium-term rates, we extract duration from the market, we provide liquidity directly to non-bank entities, we open space in banks’ balance sheets for increasing credit. Also, by reducing persistent market spreads, in ABSs for instance, we encourage banks to increase their supply.
As new money origination can only be achieved through the creation of more loans, this measure has the potential to increase the supply of credit and reduce the price at which it is granted. Another important channel through which we expect asset purchases to work in the euro area is the broad portfolio balance channel.