- "Central banks in OECD countries have been forced to significantly increase the size of their balance sheets (the monetary base), first to lend to the banks when the financial markets where banks finance themselves seized up; to drive down long-term interest rates; and subsequently to become buyers of last resort of financial assets for which demand from private investors had disappeared, which now includes euro-zone government bonds. In the case of Switzerland, the objective was to prevent the appreciation of the Swiss franc."
- "This has markedly increased the holding of liquid and money-market assets by banks and institutional investors. Central banks obviously announced that they would reduce the liquidity once the situation in the financial markets normalises; but this may take time, due to the factors of uncertainty that subsist (financial situation of households, state of public finances, etc.) and we must seriously consider the possibility that holders of liquidity will try to
use it before it is destroyed."
- "If credit demand remains weak, liquidity will be used to increase demand for non credit-related assets whose risk/return ratio trade-off seems favourable for banks and investors; this is likely to involve emerging country securities and commodities if the financial markets in OECD countries still give rise to concern - which justifies maintaining monetary stimulus - and perhaps also real estate again."
Natixis Flash Economics 333 20100629
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