The European Central Bank’s primary objective is price stability.

a. The ECB provides liquidity to the banking system both through open market purchases of securities and through auctions called refinancing operations.

b. When reserves are scarce, the minimum bid rate on the main refinancing operations, also known as the target refinancing rate, is the target interest rate controlled by the ECB Governing Council.

c. The ECB allows banks to borrow from its marginal lending facility at an interest rate that is set above the target refinancing rate.

d. Banks with excess reserves can deposit them at national central banks and receive interest at a spread below the target refinancing rate. Banks will not lend to others below this riskless deposit rate, which is equivalent to the Fed’s IOER rate.