Standing facilities

Standing facilities are monetary policy operations which are initiated by central banks’ counterparties (as opposed to open market operations, which are initiated by central banks). The Eurosystem offers two overnight standing facilities: the marginal lending facility and the deposit facility. The marginal lending facility allows counterparties to quickly cover short-term liquidity requirements. The deposit facility allows counterparties to deposit funds with the Eurosystem.

The interest rate on the marginal lending facility (marginal lending rate) is normally substantially higher and the rate on the deposit facility (deposit rate) substantially lower than the corresponding money market rate. As a result, credit institutions normally only use the standing facilities in the absence of other alternatives.

The main purpose of the standing facilities is to restrict the volatility of short-term money market interest rates. As there are no limits on access to these facilities (except for collateral requirements for the marginal lending facility), the marginal lending rate and the deposit rate normally provide a ceiling and a floor, respectively, for the overnight interest rate in the money market.