A Long-term Funding Scheme is a central-bank liquidity tool that gives eligible financial institutions funding for longer maturities than normal short-term operations, usually against collateral. It is used to reduce funding stress, improve the transmission of monetary policy, and support lending to households and businesses when market funding becomes expensive or unstable. Different countries use different names, but the basic idea is the same: provide dependable medium- to long-duration funding so the banking system can keep credit flowing.

1. Term Overview

• Official Term: Long-term Funding Scheme
• Common Synonyms: longer-term funding facility, term funding facility, long-term liquidity facility, longer-term refinancing facility
• Alternate Spellings / Variants: Long term Funding Scheme, Long-term-Funding-Scheme
• Domain / Subdomain: Finance / Monetary and Liquidity Policy Instruments
• One-line definition: A central-bank-operated facility that provides eligible institutions with funding for relatively long maturities, usually against collateral and under defined policy conditions.
• Plain-English definition: It is a program through which a central bank lends money to banks for longer periods so they can keep funding loans even when markets are stressed or lending needs policy support.
• Why this term matters:
• It helps explain how central banks support the banking system beyond simply changing policy rates.
• It affects bank funding costs, credit availability, and sometimes market confidence.
• It is important for students of monetary policy, banking, regulation, and financial markets.

2. Core Meaning

What it is

A Long-term Funding Scheme is a policy instrument used by a central bank or monetary authority to provide funding with a maturity longer than routine overnight or very short-term operations. The borrowing is usually:

• available only to eligible institutions,
• secured by collateral,
• priced according to a policy rate or a formula,
• subject to operating rules, reporting, and sometimes lending conditions.

Why it exists

Banks often fund themselves at short or medium maturities but lend for much longer periods. This creates a maturity mismatch. In calm times, banks can refinance themselves easily in markets. In stressed times, wholesale funding may dry up, become too expensive, or stop transmitting policy rate cuts to the real economy.

A Long-term Funding Scheme exists to solve that problem.

What problem it solves

It is designed to address one or more of the following:

• Funding stress: banks cannot roll over maturing liabilities easily.
• Weak policy transmission: central bank rate cuts do not reduce lending rates enough.
• Credit contraction: banks pull back from lending to households and firms.
• Market dysfunction: interbank and bond markets become unreliable.
• Confidence risk: uncertainty over future funding hurts lending and investment decisions.

Who uses it

Direct users are usually:

• commercial banks,
• sometimes building societies or other deposit-taking institutions,
• in some jurisdictions, additional regulated counterparties if expressly allowed.

Indirect users or affected parties include:

• businesses and households borrowing from banks,
• investors analyzing bank funding and margins,
• regulators monitoring credit supply,
• policymakers assessing financial stability.

Where it appears in practice

It appears in:

• central bank liquidity operations,
• crisis-response toolkits,
• targeted lending support programs,
• macroeconomic stabilization frameworks,
• bank treasury and asset-liability management decisions.

3. Detailed Definition

Formal definition

A Long-term Funding Scheme is a central bank facility or program under which eligible counterparties obtain funding with a relatively long maturity, typically against eligible collateral, according to specified pricing, access limits, and operational conditions.

Technical definition

Technically, it is a collateralized refinancing operation or funding facility designed to influence bank liquidity, funding structure, and the transmission of monetary policy over a longer horizon than standard money market operations.

Operational definition

From a bank treasury perspective, a Long-term Funding Scheme is:

• a source of term funding,
• obtained from the central bank,
• subject to eligibility and collateral rules,
• used to manage liquidity, funding cost, rollover risk, and lending capacity.

Context-specific definitions

In central banking

This is the main meaning of the term. It refers to a policy tool used to inject longer-term liquidity into the banking system.

In broader business language

“Funding scheme” can loosely mean a financing arrangement or plan. That is not the main meaning here.

In cross-jurisdiction usage

The exact label varies:

• EU: longer-term refinancing operations, targeted longer-term refinancing operations
• UK: term funding scheme-type facilities
• India: long-term repo-style operations or targeted long-term liquidity facilities
• US: the exact phrase is less standard; similar goals may be met via other liquidity facilities

Important: The economic function can be similar even when the legal name is different.

4. Etymology / Origin / Historical Background

Origin of the term

The phrase combines three basic ideas:

• Long-term: funding is available for a longer maturity than overnight or weekly operations.
• Funding: the facility provides money to financial institutions.
• Scheme: a structured program with rules, access conditions, and policy objectives.

Historical development

Central banks traditionally focused on:

• overnight lending,
• discounting eligible paper,
• short-term open market operations.

As financial systems became more market-based and complex, central banks needed tools that addressed not only immediate liquidity but also term funding risk.

How usage changed over time

The use of long-term facilities expanded significantly after major financial stress periods, especially when:

• money markets stopped functioning normally,
• banks faced rollover risk,
• policy rate cuts alone were not enough.

Over time, schemes evolved from simple term liquidity support into more structured facilities with:

• collateral rules,
• targeted lending incentives,
• sectoral or macroeconomic objectives,
• early repayment and reporting requirements.

Important milestones

Without claiming a single global timeline, several broad milestones are clear:

1. Pre-global crisis: central bank lending was more heavily centered on short maturities.
2. Global financial crisis era: term funding support became much more important.
3. Post-crisis reform period: facilities became more targeted and rule-based.
4. Pandemic and stress episodes: many jurisdictions again used medium- and long-maturity liquidity tools to stabilize credit.
5. Recent practice: more focus on transmission, accountability, and exit design.

5. Conceptual Breakdown

A Long-term Funding Scheme can be understood as a combination of several building blocks.

1. Eligible counterparties

Meaning: The institutions allowed to borrow under the scheme.

Role: Determines who receives direct support.

Interaction: Eligibility interacts with supervisory status, collateral availability, and operational readiness.

Practical importance: A scheme is only effective if the institutions that matter for credit transmission can actually access it.

2. Maturity

Meaning: The duration for which funds are available.

Role: Longer maturity reduces rollover pressure and creates funding certainty.

Interaction: Maturity affects pricing, prudential treatment, and bank liquidity strategy.

Practical importance: A 3-year facility changes bank planning much more than a 7-day or 1-month operation.

3. Collateral framework

Meaning: The assets borrowers must pledge to obtain funds.

Role: Protects the central bank from credit risk.

Interaction: Collateral interacts with haircuts, valuation, concentration limits, and borrowing capacity.

Practical importance: A bank may want to use the scheme but be constrained by insufficient eligible collateral.

4. Pricing or interest rate design

Meaning: The rate charged on the funding.

Role: Influences uptake and policy transmission.

Interaction: Pricing may be fixed, floating, benchmark-linked, or incentive-based.

Practical importance: If the scheme is cheaper than market funding, it can materially lower banks’ marginal funding costs.

5. Borrowing allowance or quota

Meaning: A cap on how much each participant may borrow.

Role: Prevents overuse and aligns access with policy goals.

Interaction: Often linked to balance sheet size, lending performance, or collateral.

Practical importance: A large bank may have collateral but still face a scheme-specific cap.

6. Targeting mechanism

Meaning: Conditions tied to lending behavior, sector support, or credit expansion.

Role: Makes the scheme more than a pure liquidity backstop.

Interaction: Can influence loan pricing, credit allocation, and bank strategy.

Practical importance: Some facilities reward banks for increasing lending to SMEs or the real economy.

7. Repayment and rollover conditions

Meaning: Rules on maturity, early repayment, renewal, and exit.

Role: Shapes liquidity planning and policy normalization.

Interaction: A generous facility without a credible exit can create dependency.

Practical importance: Treasury teams must plan for what happens when the scheme matures.

8. Reporting and compliance rules

Meaning: Disclosure, data submission, and eligibility reporting requirements.

Role: Ensures policy monitoring and operational control.

Interaction: Reporting may be tied to targeted pricing or continued access.

Practical importance: Weak reporting can create mismeasurement of policy impact.

9. Risk controls

Meaning: Haircuts, margin calls, valuation rules, operational safeguards.

Role: Limits central bank exposure.

Interaction: Stronger risk controls may reduce effective borrowing capacity.

Practical importance: In stress periods, valuation and haircut changes can materially alter access.

6. Related Terms and Distinctions

Related Term	Relationship to Main Term	Key Difference	Common Confusion
Longer-Term Refinancing Operation (LTRO)	Very close related term	A specific operational label used in some jurisdictions	People assume all long-term funding schemes are LTROs
Targeted LTRO (TLTRO)	Specialized version	Includes lending incentives or targets	Confused with any low-cost central bank funding
Term Repo	Similar funding tool	Often shorter, more market-operation-oriented, and may not carry broad policy incentives	Mistaken as identical to a longer-duration policy scheme
Discount Window / Standing Facility	Related lender-of-last-resort tool	Usually shorter-term, often more backstop-oriented, and may carry stigma	Treated as interchangeable with structured term schemes
Quantitative Easing (QE)	Separate monetary tool	QE buys securities outright; a funding scheme lends against collateral	Both expand central bank balance sheets, but mechanics differ
Open Market Operations (OMO)	Umbrella monetary operations term	OMO includes many tools, not specifically long-term funding schemes	All liquidity injections are wrongly grouped together
Emergency Liquidity Assistance (ELA)	Crisis-related support	Often idiosyncratic, institution-specific, and emergency-focused	Confused with system-wide term funding facilities
Funding for Lending Scheme	Policy cousin	Specifically designed to support lending, often with incentives	Seen as a generic label everywhere
Central Bank Swap Line	Different liquidity tool	Usually cross-currency and between central banks, not domestic bank funding	Confused when funding stress has FX elements
Reserve Requirement Relief	Indirect liquidity support	Frees balance sheet liquidity rather than providing term borrowing directly	Mistaken as equivalent to central bank lending

Most common confusions

Long-term Funding Scheme vs QE

• Scheme: banks borrow and must repay.
• QE: central bank buys assets and expands reserves by purchasing securities.

Long-term Funding Scheme vs discount window

• Scheme: usually broader, longer-duration, less emergency-stigmatized.
• Discount window: often a standing backup source of liquidity.

Long-term Funding Scheme vs term repo

• Scheme: may be policy-targeted and longer maturity.
• Term repo: often a market-liquidity operation with simpler short-to-medium maturity funding.

7. Where It Is Used

Banking and lending

This is the most important setting. Banks use the scheme to:

• secure stable funding,
• manage liquidity ratios,
• continue lending during market stress,
• reduce marginal funding costs.

Monetary policy

Central banks use it to:

• improve rate transmission,
• support credit creation,
• reduce systemic funding pressure,
• influence financial conditions without only relying on policy rate moves.

Economics

Economists study these schemes as tools that affect:

• bank lending channels,
• monetary transmission,
• credit growth,
• economic activity,
• inflation and output stabilization.

Policy and regulation

Regulators and policymakers evaluate such schemes in terms of:

• financial stability,
• market functioning,
• collateral policy,
• moral hazard,
• dependence on official liquidity.

Business operations

Businesses do not usually access the scheme directly, but they feel its effects through:

• loan availability,
• borrowing rates,
• working capital financing conditions,
• refinancing opportunities.

Investing and valuation

Investors monitor them because they can affect:

• bank net interest margins,
• refinancing risk,
• asset quality pressure,
• equity valuations,
• bank bond spreads.

Reporting and disclosures

Relevant references may appear in:

• central bank policy statements,
• bank annual reports and investor presentations,
• treasury risk disclosures,
• liquidity and funding commentary.

Analytics and research

Researchers use uptake, pricing, and lending outcomes to study:

• policy effectiveness,
• pass-through,
• credit allocation,
• macro-financial stability.

8. Use Cases

1. Stabilizing banks during wholesale funding stress

• Who is using it: Central bank and commercial banks
• Objective: Prevent a sudden funding crunch
• How the term is applied: Banks borrow long-term funds against collateral when market funding becomes too expensive or unavailable
• Expected outcome: Lower rollover risk and reduced pressure to shrink lending
• Risks / limitations: Weak banks may become overly dependent on official funding

2. Improving transmission of a policy rate cut

• Who is using it: Central bank
• Objective: Ensure lower policy rates reach borrowers
• How the term is applied: Cheap term funding is offered so banks can reprice loans downward
• Expected outcome: Lower lending rates for households and firms
• Risks / limitations: Banks may not fully pass on benefits if credit risk remains high

3. Supporting SME lending

• Who is using it: Central bank and banks with SME loan books
• Objective: Direct credit toward smaller businesses
• How the term is applied: Access or pricing is linked to eligible lending performance
• Expected outcome: Better credit supply to productive sectors
• Risks / limitations: Possible distortion if banks lend to meet targets rather than credit quality

4. Smoothing refinancing for a mid-sized bank

• Who is using it: Bank treasury team
• Objective: Replace expensive market borrowing with stable official funding
• How the term is applied: The bank pledges eligible securities and borrows for multiple years
• Expected outcome: Improved funding profile and liquidity planning
• Risks / limitations: Collateral encumbrance may limit flexibility elsewhere

5. Crisis-era credit continuity program

• Who is using it: Government-aligned policymakers and central bank
• Objective: Avoid a credit freeze during a systemic shock
• How the term is applied: A broad scheme is launched with longer maturities and easier operational access for eligible counterparties
• Expected outcome: Continued credit flows and lower panic in funding markets
• Risks / limitations: Hard to withdraw later without market disruption

6. Sector-targeted monetary support

• Who is using it: Central bank, banks, and indirectly targeted sectors
• Objective: Channel liquidity toward mortgages, infrastructure, green investment, or SMEs, depending on scheme design
• How the term is applied: Preferential pricing or allowances are tied to certain loan categories
• Expected outcome: Stronger lending in the chosen segment
• Risks / limitations: Can distort resource allocation and blur monetary versus industrial policy goals

9. Real-World Scenarios

A. Beginner scenario

• Background: A student hears that banks can borrow from the central bank for three years.
• Problem: They think all bank funding comes from customer deposits.
• Application of the term: The student learns that banks also use wholesale markets and central bank facilities, especially when funding conditions are stressed.
• Decision taken: They compare overnight central bank lending with a long-term funding scheme.
• Result: They understand that longer maturity reduces funding uncertainty.
• Lesson learned: A Long-term Funding Scheme is mainly about funding stability and policy transmission, not just emergency rescue.

B. Business scenario

• Background: A manufacturing firm notices banks becoming cautious about extending working capital credit.
• Problem: Funding markets are tense, so banks are tightening terms.
• Application of the term: The central bank introduces a long-term funding scheme to lower banks’ funding costs.
• Decision taken: The firm renegotiates its credit line after banks regain funding certainty.
• Result: Loan pricing stabilizes and refinancing becomes possible.
• Lesson learned: Businesses may benefit indirectly from such schemes through improved credit availability.

C. Investor/market scenario

• Background: An equity analyst covers listed banks during a period of rising funding spreads.
• Problem: Investors worry that margins and liquidity will weaken.
• Application of the term: The central bank offers long-term funding at favorable rates against collateral.
• Decision taken: The analyst revises assumptions for funding cost, net interest margin, and loan growth.
• Result: Some banks with strong collateral pools and active lending are seen as better positioned.
• Lesson learned: Scheme design matters; not all banks benefit equally.

D. Policy/government/regulatory scenario

• Background: Economic growth is slowing even though policy rates have been cut.
• Problem: Banks are not transmitting lower rates to the real economy.
• Application of the term: Authorities launch a targeted long-term funding scheme linked to eligible lending.
• Decision taken: The program rewards banks that expand lending to the productive economy.
• Result: Lending improves, but policymakers closely monitor credit quality and unintended incentives.
• Lesson learned: Long-term funding schemes can complement rate policy, but targeting must be carefully designed.

E. Advanced professional scenario

• Background: A bank treasury desk faces a concentrated maturity wall in 12 months.
• Problem: Refinancing in bond markets looks costly and uncertain.
• Application of the term: The treasury team compares central-bank term funding with bond issuance and deposit campaigns.
• Decision taken: The bank draws under the scheme up to its collateral-constrained limit, preserving market issuance for later.
• Result: Liquidity risk falls, but collateral encumbrance rises and exit planning becomes critical.
• Lesson learned: Professional use of a Long-term Funding Scheme is a balance of cost, collateral efficiency, stigma, regulation, and future refinancing strategy.

10. Worked Examples

1. Simple conceptual example

A bank normally funds part of its balance sheet with 3-month wholesale borrowing. Market stress pushes that cost higher and creates rollover risk every quarter.

The central bank offers a 3-year Long-term Funding Scheme.

• The bank switches some funding from 3-month borrowing to 3-year central bank borrowing.
• The bank gains certainty over funding cost and maturity.
• This makes it easier to continue making loans.

2. Practical business example

A regional bank focuses on loans to small businesses.

• Market bond investors now demand 7% from the bank.
• The central bank offers 3-year funding at 5%, subject to collateral.
• The bank pledges government securities and high-quality covered assets.
• It uses the lower-cost funding to maintain SME lending lines.

Business result: The bank avoids cutting credit simply because markets are temporarily stressed.

3. Numerical example

Assume a bank has the following eligible collateral:

• Government bonds: market value = 100 million, haircut = 2%
• Covered bonds: market value = 50 million, haircut = 7%

Step 1: Calculate collateral-adjusted borrowing capacity

For government bonds:

Borrowing value = 100 million × (1 – 0.02) = 98 million

For covered bonds:

Borrowing value = 50 million × (1 – 0.07) = 46.5 million

Total collateral-adjusted capacity:

98 million + 46.5 million = 144.5 million

Step 2: Apply scheme cap

Suppose the scheme allows the bank to borrow up to 120 million.

Actual draw = lesser of: – 144.5 million collateral capacity – 120 million scheme allowance

So, actual draw = 120 million

Step 3: Estimate annual funding cost saving

Suppose: – market alternative funding cost = 6.2% – scheme funding rate = 4.8%

Funding cost saving per year:

120 million × (6.2% – 4.8%)
= 120 million × 1.4%
= 1.68 million

Annual saving = 1.68 million

Step 4: Interpret

The bank saves 1.68 million per year before considering operational costs, hedging, or changes in loan pricing.

4. Advanced example

Assume a targeted version of the scheme has:

• base rate = 4.00%
• incentive rate = 3.25% if eligible lending grows above 5%
• bank draw = 400 million
• average yield on new eligible loans = 7.50%
• expected credit loss rate = 1.50%
• operating cost rate = 0.70%

Margin at base rate

7.50% – 4.00% – 1.50% – 0.70% = 1.30%

Margin at incentive rate

7.50% – 3.25% – 1.50% – 0.70% = 2.05%

Extra annual margin from meeting the lending target

400 million × (2.05% – 1.30%)
= 400 million × 0.75%
= 3.0 million

Interpretation: Meeting the target improves annual economics by 3.0 million, but only if the added lending remains creditworthy.

11. Formula / Model / Methodology

There is no single universal formula for a Long-term Funding Scheme because each central bank designs its own operational rules. However, several analytical formulas are commonly used to evaluate such schemes.

1. Collateral-Based Borrowing Capacity

Formula:

Borrowing Capacity = Sum of [Collateral Market Value × (1 – Haircut)] – Existing Encumbrance

Meaning of each variable

• Collateral Market Value: current value of eligible pledged assets
• Haircut: percentage reduction applied for risk control
• Existing Encumbrance: portion already pledged elsewhere or unavailable

Interpretation

This estimates how much a bank can realistically borrow using its eligible collateral.

Sample calculation

Suppose: – Eligible collateral value = 200 million – Average haircut = 5% – Existing encumbrance = 20 million

Borrowing Capacity = 200 × (1 – 0.05) – 20
= 190 – 20
= 170 million

Common mistakes

• Ignoring different haircuts for different asset types
• Using book value instead of eligible market value
• Forgetting that some collateral is already encumbered

Limitations

• Does not capture operational bottlenecks
• Does not incorporate scheme-specific caps or quota rules

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2. Funding Cost Saving

Formula:

Funding Cost Saving = Amount Drawn × (Market Funding Rate – Scheme Rate)

Meaning of each variable

• Amount Drawn: funds borrowed under the scheme
• Market Funding Rate: cost of alternative market borrowing
• Scheme Rate: cost charged by the central bank facility

Interpretation

Shows the gross annual cost benefit of using the scheme instead of market funding.

Sample calculation

• Amount drawn = 300 million
• Market rate = 6.0%
• Scheme rate = 4.5%

Funding Cost Saving = 300 × (6.0% – 4.5%)
= 300 × 1.5%
= 4.5 million

Common mistakes

• Treating gross saving as net profit
• Ignoring collateral, reporting, hedging, and operational costs
• Assuming savings automatically translate into lower customer loan rates

Limitations

• Market rate may change over time
• Scheme pricing may be floating or target-dependent

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3. Net Incremental Lending Margin

Formula:

Net Incremental Lending Margin = Loan Yield – Effective Funding Cost – Expected Credit Loss Rate – Operating Cost Rate

Meaning of each variable

• Loan Yield: average rate earned on loans
• Effective Funding Cost: all-in cost of scheme funding
• Expected Credit Loss Rate: expected bad-loan cost
• Operating Cost Rate: servicing and distribution cost

Interpretation

Helps assess whether using scheme funding to support new lending is economically viable.

Sample calculation

• Loan yield = 8.0%
• Effective funding cost = 4.7%
• Expected credit loss = 1.4%
• Operating cost = 0.9%

Net Margin = 8.0% – 4.7% – 1.4% – 0.9%
= 1.0%

Common mistakes

• Ignoring risk-adjusted lending economics
• Treating all lending as equally profitable
• Overlooking capital usage and regulatory constraints

Limitations

• Simplifies loan portfolio behavior
• Excludes optionality, prepayment, and duration risk

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4. Pass-Through Indicator

Formula:

Pass-Through Ratio = Change in Customer Lending Rate / Change in Bank Marginal Funding Cost

Interpretation

Measures how much of the bank’s funding improvement is passed to borrowers.

Sample calculation

• Marginal funding cost falls by 1.2%
• Customer lending rate falls by 0.6%

Pass-Through Ratio = 0.6 / 1.2 = 0.50

Meaning: 50% of the funding improvement was passed through.

Common mistakes

• Ignoring credit risk changes
• Comparing different loan segments
• Treating partial pass-through as failure without context

Limitations

• Lending rates depend on competition, risk, regulation, and borrower quality

12. Algorithms / Analytical Patterns / Decision Logic

A Long-term Funding Scheme is not usually defined by a trading algorithm, but institutions do use structured decision logic around it.

1. Participation decision framework

What it is: A bank’s internal decision tree for whether to draw under the scheme.

Why it matters: Drawing is not automatic; banks compare it with deposits, bond issuance, repos, and internal liquidity.

When to use it: Before entering or expanding scheme use.

Typical logic: 1. Confirm eligibility. 2. Estimate collateral-adjusted borrowing capacity. 3. Compare all-in scheme cost with alternative funding. 4. Review lending opportunities and regulatory implications. 5. Decide draw size and maturity strategy.

Limitations: Assumptions may become outdated quickly in volatile markets.

2. Collateral optimization logic

What it is: A process to allocate the best collateral to the most efficient funding source.

Why it matters: Good collateral is scarce and valuable.

When to use it: When a bank uses multiple secured funding channels.

Typical logic: 1. Rank assets by eligibility and haircut. 2. Reserve cheapest-to-deliver collateral for the most attractive facility. 3. Monitor concentration and substitution options. 4. Rebalance if valuations or haircuts change.

Limitations: Operational complexity can be high.

3. Target compliance monitoring

What it is: A framework for tracking whether lending-linked conditions are being met.

Why it matters: In targeted schemes, pricing or access may depend on performance.

When to use it: During the life of the facility.

Typical logic: 1. Define eligible lending categories. 2. Measure baseline lending. 3. Track gross and net lending over reporting periods. 4. Compare against thresholds. 5. Estimate pricing impact and repayment options.

Limitations: Definitions of eligible lending may be technical and subject to revision.

4. Exit and rollover planning matrix

What it is: A treasury plan for scheme maturity and replacement funding.

Why it matters: Cheap official funding eventually expires.

When to use it: Well before maturity walls develop.

Typical logic: 1. Map maturity dates. 2. Stress-test market access. 3. Estimate deposit, bond, repo, and retained earnings alternatives. 4. Build a phased replacement plan. 5. Avoid a refinancing cliff.

Limitations: Future market conditions may differ sharply from assumptions.

13. Regulatory / Government / Policy Context

General policy context

A Long-term Funding Scheme sits at the intersection of:

• monetary policy,
• financial stability policy,
• prudential supervision,
• collateral and risk-control frameworks.

Typical regulatory features

Most schemes involve rules around:

• eligible counterparties,
• eligible collateral,
• valuation and haircuts,
• operational reporting,
• disclosure or supervisory monitoring,
• repayment terms and breaches.

Central bank relevance

Central banks use these schemes to influence:

• the cost and availability of bank funding,
• the maturity structure of bank liabilities,
• the pace of credit creation,
• monetary transmission into the broader economy.

Accounting relevance

For banks, funds borrowed under such a scheme are generally recognized as liabilities, with interest expense recognized over time. The accounting treatment of pledged collateral, repo-style structures, fees, and hedge effects depends on:

• the legal form of the arrangement,
• applicable accounting standards,
• jurisdiction-specific guidance.

Verify the exact accounting treatment under the applicable reporting framework.

Prudential relevance

A scheme may affect:

• liquidity planning,
• encumbered assets,
• funding concentration,
• maturity mismatch,
• internal stress testing.

Its impact on regulatory liquidity or funding ratios depends on current prudential rules and supervisory interpretation.

Do not assume identical treatment across jurisdictions or time periods.

Tax angle

This is not primarily a tax concept. Tax consequences usually arise indirectly through interest expense recognition or transfer pricing issues inside a banking group. Those details must be checked under local law.

Jurisdictional notes

European Union / Eurosystem

The Eurosystem has used longer-term refinancing operations and targeted versions as part of its monetary policy framework. Key features typically include:

• eligible counterparties,
• eligible collateral framework,
• published operation terms,
• reporting for targeted incentives.

United Kingdom

The Bank of England has used term funding-type facilities to support policy transmission and, in some versions, lending to the real economy and SMEs. Terms typically specify:

• participant eligibility,
• borrowing allowances,
• collateral and fees,
• reporting requirements.

India

The Reserve Bank of India has used long-term repo and targeted liquidity operations that are functionally similar in purpose, even if not always labeled “Long-term Funding Scheme.” These are typically embedded within the liquidity management framework.

United States

The exact phrase is less standard. Similar objectives may be achieved through temporary liquidity facilities, discount window tools, or crisis-specific funding programs. Details differ materially from European and UK designs.

International / global usage

Globally, the concept refers to official provision of longer-maturity liquidity to support monetary transmission, market functioning, or credit supply.

14. Stakeholder Perspective

Student

A student should see a Long-term Funding Scheme as a tool that connects central bank actions to real-world bank lending. It is a practical example of the credit channel of monetary policy.

Business owner

A business owner is usually not a direct participant. The scheme matters because it can improve:

• access to working capital,
• refinancing conditions,
• loan pricing stability.

Accountant

An accountant focuses on:

• liability recognition,
• interest accrual,
• collateral disclosures,
• possible classification issues,
• note disclosure around funding reliance and encumbrance.

Investor

An investor uses it to assess:

• bank funding cost relief,
• margin support,
• liquidity risk,
• dependence on central bank funding,
• exit risk when the facility matures.

Banker / lender

A banker sees it as a funding instrument that must be weighed against:

• deposits,
• wholesale issuance,
• repo funding,
• profitability,
• collateral usage,
• regulatory constraints.

Analyst

An analyst studies:

• uptake levels,
• pass-through to credit,
• collateral availability,
• distribution of benefits across banks,
• macroeconomic effectiveness.

Policymaker / regulator

A policymaker evaluates whether the scheme:

• improves transmission,
• protects financial stability,
• supports credit responsibly,
• creates moral hazard,
• is temporary and exit-ready.

15. Benefits, Importance, and Strategic Value

Why it is important

A Long-term Funding Scheme matters because it can bridge the gap between central bank intent and actual credit conditions in the economy.

Value to decision-making

It helps banks and policymakers make better decisions around:

• liquidity management,
• funding structure,
• loan pricing,
• crisis response,
• monetary transmission.

Impact on planning

For banks, it improves planning by reducing uncertainty around:

• refinancing needs,
• maturity gaps,
• funding costs,
• liquidity stress scenarios.

Impact on performance

Potential performance benefits include:

• lower marginal funding cost,
• steadier lending volumes,
• better net interest margin support,
• reduced forced deleveraging.

Impact on compliance

A well-structured scheme can support compliance with internal liquidity and funding policies, though it can also create new reporting and collateral obligations.

Impact on risk management

It can reduce:

• rollover risk,
• market access risk,
• short-term funding dependence.

But it must be managed carefully to avoid new risks such as overreliance on central bank support.

16. Risks, Limitations, and Criticisms

Common weaknesses

• Benefits may not reach end borrowers fully.
• Banks with weak collateral may benefit less.
• The strongest users may be the banks that least need help.

Practical limitations

• Access depends on eligibility and operational readiness.
• Collateral constraints may limit usable size.
• Scheme design may not suit all bank business models.

Misuse cases

• Using cheap official funding mainly to boost carry trades rather than productive lending
• Overextending balance sheets because funding appears temporarily cheap
• Delaying necessary balance-sheet repair

Misleading interpretations

• High uptake is not always a success; it may indicate severe market stress.
• Low uptake is not always failure; it may mean markets are functioning well.

Edge cases

• A bank may have large eligible collateral but little profitable demand for new lending.
• A targeted scheme may stimulate lending quantity but weaken underwriting quality if incentives are poorly designed.

Criticisms by experts or practitioners

• Moral hazard: banks may expect future support.
• Market distortion: official funding can crowd out private market discipline.
• Resource misallocation: lending incentives may favor quantity over quality.
• Exit difficulty: removing support can trigger refinancing stress.
• Blurred policy boundaries: targeted schemes can look quasi-fiscal in some cases.

17. Common Mistakes and Misconceptions

1. Wrong belief: “It is free money for banks.”

• Why it is wrong: Banks must meet eligibility rules, pledge collateral, pay interest, and eventually repay.
• Correct understanding: It is structured funding, not a grant.
• Memory tip: Scheme funding is borrowed, not gifted.

2. Wrong belief: “It is the same as QE.”

• Why it is wrong: QE involves asset purchases; a funding scheme involves lending against collateral.
• Correct understanding: One buys assets, the other extends credit.
• Memory tip: QE buys; a funding scheme lends.

3. Wrong belief: “Only weak banks use it.”

• Why it is wrong: Strong banks may use it rationally if it is cost-effective and strategically useful.
• Correct understanding: Usage can reflect optimization, not distress alone.
• Memory tip: Use does not equal weakness.

4. Wrong belief: “Long-term means permanent.”

• Why it is wrong: Long-term is relative to normal liquidity operations, not forever.
• Correct understanding: Maturities are longer, but still finite.
• Memory tip: Long-term in policy still has an end date.

5. Wrong belief: “If banks get cheaper funding, borrowers automatically get cheaper loans.”

• Why it is wrong: Loan pricing also depends on credit risk, competition, regulation, and capital.
• Correct understanding: Pass-through may be partial.
• Memory tip: Funding cost is one driver, not the whole price.

6. Wrong belief: “Collateral is just a formality.”

• Why it is wrong: Collateral eligibility, valuation, and haircuts are central to access.
• Correct understanding: Collateral often determines real borrowing capacity.
• Memory tip: No collateral, no capacity.

7. Wrong belief: “Higher uptake always proves success.”

• Why it is wrong: High usage may reflect deep stress or arbitrage.
• Correct understanding: Evaluate uptake together with lending, spreads, and stability outcomes.
• Memory tip: Context beats raw volume.

8. Wrong belief: “All countries use the same design.”

• Why it is wrong: Terms, objectives, pricing, and access vary widely by jurisdiction.
• Correct understanding: Always check the specific central bank framework.
• Memory tip: Same idea, different rulebook.

18. Signals, Indicators, and Red Flags

Positive signals

• Lower bank funding spreads after scheme launch
• Improved stability of bank bond issuance
• Better pass-through of policy easing to lending rates
• Growth in eligible credit without major deterioration in quality
• Reduced near-term refinancing pressure

Negative signals

• Heavy uptake with little lending response
• Rising dependence on official funding over time
• Concentration of use among fragile institutions
• Weak market re-entry as scheme maturity approaches
• Poor-quality lending growth driven by targets

Warning signs

• Collateral scarcity or excessive encumbrance
• Clustering of maturity dates
• Declining asset quality in incentivized lending segments
• Investor concern over “funding cliff” risk
• Roll-over expectations becoming embedded

Metrics to monitor

• Total scheme uptake
• Participation by institution type
• Spread between scheme cost and market funding cost
• Lending growth in eligible segments
• Average customer lending rate changes
• Encumbered asset ratio
• Maturity profile of scheme repayment
• Asset quality metrics on loans originated during the scheme period

What good vs bad looks like

Indicator	Good	Bad
Uptake	Healthy use aligned with policy goals	Panic-driven or highly concentrated use
Lending response	Measured improvement in credit supply	No lending response or reckless expansion
Funding profile	Longer, smoother maturity ladder	Large future refinancing cliff
Market access	Official funding complements market funding	Official funding replaces market discipline entirely
Credit quality	Stable underwriting standards	Incentive-driven deterioration

19. Best Practices

Learning

• Start with central bank operating frameworks before studying special facilities.
• Understand the difference between liquidity support and asset purchases.
• Learn the language of collateral, haircuts, and refinancing operations.

Implementation

For banks and practitioners:

1. Confirm eligibility and operational readiness.
2. Inventory collateral carefully.
3. Compare all-in cost with alternatives.
4. Match funding duration with asset strategy.
5. Avoid using the facility without an exit plan.

Measurement

• Track gross and net cost savings.
• Monitor pass-through to lending.
• Evaluate risk-adjusted lending, not just loan volume.
• Stress-test repayment at maturity.

Reporting

• Maintain clear records of draws, collateral, pricing, and covenant-like conditions.
• Separate temporary policy support from core structural funding in management reporting.
• Explain maturity concentration clearly to boards and investors.

Compliance

• Follow central bank documentation closely.
• Validate collateral eligibility and valuation procedures.
• Keep reporting consistent with supervisory expectations.

Decision-making

• Use the scheme when it enhances stability and supports sound lending.
• Do not let temporary cheap funding hide structural weaknesses.
• Plan replacement funding early.

20. Industry-Specific Applications

Banking

This is the primary industry of direct use. Banks use such schemes for:

• term liquidity,
• balance-sheet support,
• loan book continuity,
• treasury optimization.

Housing finance and mortgage lending

Where mortgage lenders are eligible directly or through banks, long-term funding can support:

• mortgage rate transmission,
• refinancing stability,
• longer-duration lending.

SME and commercial lending

Banks may use the scheme to maintain working-capital and term loan pipelines for businesses.

Fintech

Fintech firms usually do not access central bank schemes directly unless specially permitted. However, they are affected indirectly through:

• partner banks’ funding costs,
• credit line pricing,
• warehouse financing conditions.

Insurance

Insurers are generally not the direct users of these schemes, but they may be affected through:

• bank bond markets,
• asset yields,
• broader monetary conditions.

Manufacturing, retail, healthcare, and technology

These sectors are indirect beneficiaries when easier bank funding supports:

• payroll financing,
• inventory financing,
• capital expenditure loans,
• project credit.

Government / public finance

Public authorities care because such schemes can support economic stabilization without direct fiscal spending, though they may also create contingent policy trade-offs.

21. Cross-Border / Jurisdictional Variation

Geography	Typical Label or Close Equivalent	Main Purpose	Key Design Nuance
EU	LTRO / TLTRO-type facilities	Monetary transmission and liquidity support	Strong collateral framework; targeted variants may link terms to lending
UK	Term funding scheme-type facilities	Support transmission and credit conditions	Allowances and incentives may focus on real-economy lending, including SMEs
India	LTRO / targeted liquidity operations	Improve liquidity and transmission	Often integrated into broader liquidity management and market-support tools
US	Temporary term funding or window/facility equivalents	Stress support and funding backstop	Exact term “Long-term Funding Scheme” is less standard
Global usage	Generic long-term central bank funding facility	Stabilize funding and lending	Institutional design differs significantly

Key comparative points

India

• Similar function exists, but terminology may differ.
• Repo-based structures are common in liquidity management discussions.

US

• The concept exists functionally, but naming conventions differ.
• Facility design is often crisis-specific and operationally distinct.

EU

• More established use of formal longer-term refinancing operations.
• Targeting and collateral frameworks are highly structured.

UK

• The term “scheme” is especially intuitive in the UK context because policy facilities have often been presented as structured programs.

International usage

• Analysts often use umbrella language even when local legal names differ.

22. Case Study

Context

A mid-sized commercial bank depends on wholesale funding for 30% of its liabilities. A market shock causes spreads on its 3-year bond issuance to jump sharply.

Challenge

The bank faces three problems at once:

• high refinancing cost,
• uncertainty over market access,
• pressure to keep lending to SMEs.

Use of the term

The central bank launches a Long-term Funding Scheme with 4-year maturity, collateral requirements, and favorable pricing for institutions that maintain eligible business lending.

Analysis

The bank treasury team estimates:

• collateral-adjusted borrowing capacity: 600 million
• market funding cost: 6.5%
• scheme cost: 4.75%
• annual gross saving on a 500 million draw:
  500 million × (6.5% – 4.75%) = 8.75 million

It also estimates that SME loan demand remains healthy and risk-adjusted returns are positive.

Decision

The bank draws 500 million under the scheme, allocates part of the funding to refinance maturing debt, and reserves part to sustain SME lending. It simultaneously creates a two-year exit plan to reduce dependency before maturity.

Outcome

• Refinancing pressure falls immediately.
• SME lending does not contract as feared.
• Investors initially view the draw neutrally, then positively once disclosures show active exit planning and stable credit quality.

Takeaway

A Long-term Funding Scheme works best when used as a bridge, not a substitute for long-term funding discipline.

23. Interview / Exam / Viva Questions

10 Beginner Questions

1. What is a Long-term Funding Scheme?
   Answer: It is a central bank facility that provides eligible financial institutions with funding for longer maturities, usually against collateral.

2. Who usually borrows under such a scheme?
   Answer: Mainly banks and other eligible regulated financial institutions.

3. Why is it called “long-term”?
   Answer: Because the maturity is longer than normal overnight or short-term central bank operations.

4. Is it the same as a grant?
   Answer: No. It is borrowed money that must be repaid and usually requires collateral.

5. What is the main purpose of the scheme?
   Answer: To support bank funding stability and improve monetary policy transmission.

6. Why does collateral matter?
   Answer: Collateral protects the central bank and determines how much a bank can borrow.

7. Does it directly lend to households or businesses?
   Answer: Usually no. It lends to financial institutions, which then lend to the economy.

8. Is it the same as QE?
   Answer: No. QE is asset purchase; a funding scheme is central bank lending.

9. Can a healthy bank use it?
   Answer: Yes, if the scheme is cost-effective and the bank is eligible.

10. What is one major risk of overusing it?
    Answer: Dependence on central bank funding and future refinancing risk.

10 Intermediate Questions

1. How does a Long-term Funding Scheme improve monetary transmission?
   Answer: It lowers and stabilizes banks’ marginal funding costs, increasing the chance that policy easing reaches lending rates and credit volumes.

2. What is rollover risk, and how does the scheme reduce it?
   Answer: Rollover risk is the danger that maturing funding cannot be replaced easily. Longer-term official funding reduces how often banks must refinance.

3. How do haircuts affect borrowing capacity?
   Answer: Haircuts reduce the lendable value of collateral, lowering effective borrowing capacity.

4. Why might pass-through to borrowers be incomplete?
   Answer: Because credit risk, competition, capital, and loan demand also affect lending rates.

5. What is the difference between a generic and a targeted scheme?
   Answer: A generic scheme mainly provides liquidity; a targeted scheme links access or pricing to lending behavior or policy objectives.

6. What does collateral encumbrance mean here?
   Answer: It means assets are pledged and therefore less available for other funding or liquidity purposes.

7. Why do analysts care about scheme maturity profiles?
   Answer: Because concentrated repayments can create future funding cliffs.

8. Can high scheme uptake be a bad sign?
   Answer: Yes. It may indicate severe market stress or growing dependence on official support.

9. How is this different from emergency liquidity assistance?
   Answer: A Long-term Funding Scheme is usually broader and more programmatic; emergency liquidity is often institution-specific and crisis-driven.

10. What is one key limitation of using funding cost saving as the only success metric?
    Answer: It ignores credit quality, pass-through, and long-term dependency risks.

10 Advanced Questions

1. How would you evaluate whether a scheme is macroeconomically successful?
   Answer: By examining funding conditions, lending volumes, rate pass-through, financial stability outcomes, and credit quality together.

2. Why might a targeted scheme create allocative distortions?
   Answer: Because banks may shift lending toward incentivized categories even when risk-return trade-offs are weaker elsewhere.

3. What is the interaction between scheme design and collateral scarcity?
   Answer: A generous scheme may still have limited uptake if institutions lack eligible unencumbered collateral.

4. How can central bank term funding affect bank equity valuations?
   Answer: It can improve expected margins and reduce liquidity risk, but excessive reliance may raise concerns about structural weakness.

5. What is the difference between liquidity support and solvency support in this context?
   Answer: Liquidity support addresses temporary funding problems; solvency support addresses inadequate capital or negative net worth.

6. Why is exit design critical?
   Answer: Because a scheme that is easy to enter but hard to leave can create future instability and funding cliffs.

7. How could a regulator identify misuse of the scheme?
   Answer: By comparing funding uptake with lending behavior, collateral quality, risk migration, and non-core balance-sheet expansion.

8. Why might a scheme reduce market discipline?
   Answer: If official funding becomes too attractive, banks may rely less on private market pricing signals.

9. What factors determine whether scheme pricing is actually attractive?
   Answer: Policy rate linkage, spread or fee structure, collateral cost, hedging cost, and the bank’s market alternatives.

10. How would you stress-test a bank using a Long-term Funding Scheme?
    Answer: Model collateral shocks, haircut changes, early market closure, maturity clustering, reduced pass-through, and replacement funding cost at exit.

24. Practice Exercises

5 Conceptual Exercises

1. Explain in your own words why a central bank might prefer a long-term funding scheme over only cutting the policy rate.
2. Distinguish between a Long-term Funding Scheme and QE.
3. Describe two ways such a scheme can help a bank without directly improving its solvency.
4. Why might a targeted lending condition improve policy effectiveness?
5. Why is collateral central to the operation of the scheme?

5 Application Exercises

1. A bank has stable deposits but weak bond market access. How could a long-term funding scheme help?
2. A policymaker wants to support SME lending without direct fiscal subsidies. How might a targeted scheme be designed?
3. An investor sees high scheme uptake at one bank and low uptake at another. What additional information should the investor seek before making a judgment?
4. A treasury team can borrow under the scheme, issue bonds, or run a deposit campaign. What factors should it compare?
5. A bank uses the scheme heavily but does not expand lending. What explanations might be reasonable, and what might be concerning?

5 Numerical or Analytical Exercises

1. A bank has eligible collateral of 80 million with a 5% haircut. What is the collateral-adjusted borrowing value?
2. A bank draws 200 million under a scheme at 4.2% instead of market funding at 5.6%. What is the annual gross funding cost saving?
3. Loan yield is 7.8%, scheme effective cost is 4.6%, expected credit loss is 1.3%, and operating cost is 0.7%. What is the net incremental lending margin?
4. A bank’s marginal funding cost falls by 1.0%, and average business loan pricing falls by 0.4%. What is the pass-through ratio?
5. A bank has: – government bonds worth 60 million, haircut 2% – corporate bonds worth 40 million, haircut 10% – existing encumbrance 15 million
   Calculate borrowing capacity.

Answer Key

Conceptual Answers

1. Because rate cuts alone may not fix impaired funding markets or ensure banks can fund themselves long enough to keep lending.
2. QE is asset purchase; a Long-term Funding Scheme is collateralized lending.
3. It can reduce rollover risk and lower funding cost without fixing capital weakness.
4. It can tie cheaper funding to real-economy lending outcomes.
5. Collateral protects the central bank and determines practical borrowing capacity.

Application Answers

1. It can replace expensive or unavailable market funding with stable term funding.
2. Access or pricing can be linked to incremental SME lending, with clear reporting rules.
3. Seek collateral position, market funding alternatives, credit quality, maturity profile, and dependence trends.
4. Compare cost, maturity, collateral usage, operational complexity, investor signaling, and exit risk.
5. Reasonable explanations: refinancing existing debt, weak loan demand, high credit risk. Concerning explanations: poor pass-through, balance-sheet arbitrage, or dependence without productive lending.

Numerical Answers

1. 80 × (1 – 0.05) = 76 million
2. 200 × (5.6% – 4.2%) = 200 × 1.4% = 2.8 million
3. 7.8% – 4.6% – 1.3% – 0.7% = 1.2%
4. 0.4 / 1.0 = 0.40 or 40%
5. • Government bonds: 60 × 0.98 = 58.8
   • Corporate bonds: 40 × 0.90 = 36.0
   • Total before encumbrance = 94.8
   • After encumbrance = 94.8 – 15 = 79.8 million

25. Memory Aids

Mnemonic: LONG

• L = Longer maturity than normal operations
• O = Official central bank funding
• N = Needs collateral and rules
• G = Goal is transmission and stability

Mnemonic: FUND

• F = Funding support for banks
• U = Usually collateralized
• N = Not the same as QE
• D = Designed to support credit flow

Analogy

Think of it like a bridge loan for the banking system. The central bank builds a temporary bridge so banks can cross a period of stress without cutting off credit.

Quick memory hooks

• Long-term funding scheme = term liquidity with policy purpose.
• It lends, it does not gift.
• Collateral decides capacity.
• Cheap funding does not automatically mean good lending.
• Success = stability plus useful credit transmission, not just high uptake.

26. FAQ

1. What is a Long-term Funding Scheme in one sentence?
   A central bank program that lends to eligible institutions for longer maturities, usually against collateral.

2. Who can access it?
   Usually only eligible regulated financial institutions.

3. Is it always used during crises?
   No. It is common in stress periods, but it can also be used to improve normal monetary transmission.

4. Does it replace deposits?
   Not fully. It is one funding source among many.

5. Is it always cheaper than market funding?
   Not always, but it is often designed to be attractive under policy objectives.

6. Why do central banks require collateral?
   To manage credit risk and protect the public balance sheet.

7. Can non-banks use it directly?
   Usually not, unless the scheme explicitly allows them.

8. What is the main difference from a repo?
   A repo is a funding transaction format; a Long-term Funding Scheme is a broader policy program that may use repo-like mechanics.

9. What happens when the scheme matures?
   The borrower must repay or replace the funding through other sources.

10. Can a scheme support specific sectors?
    Yes, if it is targeted by design.

11. Why might a bank not use the scheme even if it is available?
    It may lack eligible collateral, prefer market funding, or find the operational conditions unattractive.

12. Is heavy use a sign of weakness?
    Not automatically. Context matters.

13. How does it affect investors?
    It can change bank liquidity risk, margins, and refinancing outlook.

14. Does it solve solvency problems?
    No. It mainly addresses liquidity and funding structure.

15. Why is exit planning so important?
    Because temporary official funding can create future refinancing cliffs if not replaced gradually.

16. Can such schemes distort markets?
    Yes, if they become too large, too cheap, or too persistent.

17. How do targeted schemes differ from generic ones?
    Targeted schemes tie access or pricing to lending behavior or specific policy outcomes.

27. Summary Table

Term	Meaning	Key Formula/Model	Main Use Case	Key Risk	Related Term	Regulatory Relevance	Practical Takeaway
Long-term Funding Scheme	Central bank term funding for eligible institutions, usually against collateral	Borrowing Capacity = Sum of collateral after haircuts; Funding Cost Saving = Draw × (Market Rate – Scheme Rate)	Stabilizing bank funding and supporting credit transmission	Dependence on official funding and future exit risk	LTRO, term funding facility, targeted lending facility	High: tied to central bank operating rules, collateral rules, reporting, and supervision	Useful as a bridge and transmission tool, but only if collateral, credit quality, and exit planning are managed well

28. Key Takeaways

• A Long-term Funding Scheme is a central-bank policy instrument, not a corporate finance funding plan.
• It provides term funding longer than normal short-duration liquidity operations.
• It is usually collateralized and available only to eligible institutions.
• Its core purpose is to reduce funding stress and improve monetary policy transmission.
• It can also support lending to households, SMEs, and the broader economy.
• There is no single global design; details vary across central banks and jurisdictions.
• It is not the same as QE, emergency liquidity assistance, or a standard discount window loan.
• Collateral availability and haircuts often determine actual borrowing capacity.
• The scheme’s benefit can be analyzed through funding cost savings, pass-through, and lending margins.
• High uptake alone is not proof of success.
• Real success should be judged by stability, transmission, credit availability, and credit quality.
• Targeted versions can improve policy precision but may create distortions.
• Banks must manage encumbrance, reporting, and exit planning carefully.
• Investors should watch funding dependence and maturity cliffs.
• Policymakers must balance support with market discipline.
• A well-designed scheme acts as a bridge, not a permanent substitute for sound funding structures.

29. Suggested Further Learning Path

Prerequisite terms

• monetary policy
• policy rate
• open market operations
• repo and reverse repo
• collateral and haircut
• liquidity risk
• asset-liability management

Adjacent terms

• LTRO
• TLTRO
• discount window
• standing lending facility
• emergency liquidity assistance
• QE
• reserve requirements

Advanced topics

• transmission mechanism of monetary policy
• bank treasury management
• liquidity stress testing
• collateral optimization
• prudential liquidity ratios
• encumbered assets analysis
• central bank balance sheet design

Practical exercises

• Compare a bank’s