2.4 The Eurosystem broadened its asset purchase programmes in 2020
The European Central Bank responded to the coronavirus pandemic by broadening its existing asset purchase programme and launching a new pandemic emergency purchase programme in March 2020. The Bank of Finland participates in the implementation of the public sector, corporate sector and covered bond purchase programmes. The amount of securities purchased under these programmes on the Bank of Finland’s balance sheet increased to EUR 66 billion.
In March 2015, the ECB launched its asset purchase programme (APP). As part of its non-standard monetary policy measures, the Eurosystem purchases bonds from banks, thereby increasing the supply of money in the economy (Finnish).
The aim of the Eurosystem’s asset purchases is to support economic growth in the euro area and facilitate price stability. Asset purchase programmes have become an important tool for implementing monetary policy.
The APP consists of the following purchase programmes: the public sector purchase programme (PSPP), the corporate sector purchase programme (CSPP), the third covered bond purchase programme (CBPP3) and the asset-backed securities purchase programme (ABSPP).
In November 2019 the Governing Council decided to restart its net purchases under the APP at an average monthly pace of EUR 20 billion.
In response to the emerging coronavirus crisis, the Governing Council decided on 12 March 2020 to add a temporary envelope of additional net asset purchases of EUR 120 billion until the end of the year.
The Governing Council continues to expect net asset purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
On 18 March 2020 the Governing Council announced a new and temporary EUR 750 billion pandemic emergency purchase programme (PEPP), to tackle the serious risks caused by the COVID-19 pandemic to the transmission mechanism of monetary policy as well as to the euro area outlook.
The Governing Council decided to increase the envelope of the pandemic emergency purchase programme on 4 June 2020 by EUR 600 billion, and again on 10 December 2020 by EUR 500 billion, for a new total of EUR 1,850 billion.
The Governing Council will terminate net asset purchases under the PEPP once it judges that the COVID-19 crisis phase is over, but in any case not before the end of March 2022. The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2023.
Asset categories eligible under the PEPP are the same as under the APP. On 18 March 2020 the Governing Council also decided to expand the eligibility of non-financial commercial paper to securities with a remaining maturity of at least 28 days. In addition, securities issued by the Greek government and shorter-term public sector securities with a residual maturity of at least 70 days were made eligible for purchase under the PEPP.
The Eurosystem's holdings of assets purchased under the APP increased from EUR 2,580 billion to EUR 2,909 billion in 2020. The ECB publishes the Eurosystem's PEPP holdings every two months, and at the end of November 2020 PEPP holdings amounted to around EUR 698 billion. Time series of the Eurosystem's APP and PEPP holdings are available on the ECB's website.
Implementation of the asset purchase programmes at the Bank of Finland
The Bank of Finland conducts asset purchases under all of the purchase programmes except for the asset-backed securities purchase programme. The amount of monetary policy-related securities on the receivables side of the Bank of Finland’s balance sheet increased from EUR 46 billion to EUR 66 billion in 2020.
The Bank of Finland's purchases of public sector securities consisted of debt instruments issued by the Finnish government, Finnvera, Municipality Finance and the Employment Fund.
At the end of 2020 the Bank of Finland balance sheet contained EUR 30.3 billion of government bonds and government-related bonds purchased under the APP, including EUR 0.4 billion of assets purchased under the Securities Markets Programme (SMP). The balance sheet also included EUR 2.7 billion in bonds issued by European supranational institutions.
The Bank of Finland acts as one of six national central banks carrying out corporate sector purchases on behalf of the Eurosystem as a whole.
The Bank of Finland is responsible for purchasing corporate sector debt instruments issued by Austrian, Estonian, Finnish, Irish, Latvian and Lithuanian companies.
The Bank of Finland has concentrated its covered bond purchases on the Finnish covered bond market. Overall, the Bank of Finland’s holdings under the private sector purchase programmes of the APP amounted to EUR 19.9 billion at the end of 2020, comprising EUR 9.7 billion in covered bonds and EUR 10.2 billion in corporate bonds.
The Bank of Finland's PEPP holdings amounted to EUR 12.8 billion at the end of 2020.
Pricing of securities lending programme adjusted
The Eurosystem makes the securities it has acquired under its asset purchase programmes available for securities lending, as appropriate.
The aim of securities lending is to support the liquidity of the euro area bond market. Securities are made available for lending in a decentralised manner.
The Bank of Finland’s holdings are available for securities lending through its securities depository, Euroclear Bank, against securities collateral. The Bank of Finland also engages in bilateral securities lending with its holdings under the public sector purchase programme, against cash collateral.
A list of holdings under the corporate sector and public sector purchase programmes available for lending is published on a weekly basis on the Bank of Finland website.
In November 2020, the Eurosystem adjusted the pricing of its securities lending programme to ensure that the Eurosystem securities lending facilities remain an effective alternative to market-based lending.