The standing facilities enable the counterparties to smooth the daily liquidity fluctuations. Considering the movements of the balance sheet items that are not directly affected by the monetary policy, it is impossible to provide an accurate amount of money through open market operations which would satisfy the overall minimum reserve requirements. Moreover, every working day the demand for central bank money depends on the ability of money market participants to distribute the liquidity among themselves.

The interest rate on the marginal lending facility usually provides a ceiling for the overnight market interest rate. Counterparties can use the deposit facility to make overnight deposits with national central banks. Under normal circumstances, the interest rate on the deposit facility provides a floor for the overnight market interest rate. Thus the interest rates on the standing facilities usually form a corridor for the interbank overnight rate, limiting the fluctuations.

Table 2. Overview of the types of standing facilities used by the Eurosystem

Standing facilities

Types of transactions

Maturity

Frequency

Procedure

 

Liquidity-providing

Liquidity-absorbing

 
 

Marginal lending facility

Reverse transactions

Overnight

Access at the discretion of counterparties

 

Deposit facility

Deposits

Overnight

Access at the discretion of counterparties