- Expanding so-called QE to corporate bonds is unlikely to boost private investment
- The debt purchases may be a pilot program by the ECB to bail out key industries
- The program gives Brussels a useful carrot to encourage corporate compliance
Late in the 20th century, the role of central banks as a safety net for the banking industry became stronger. If a commercial bank ran into trouble, it was widely believed that the central bank would step in and offer all the (paper) money required to ward off a liquidity crisis, bankruptcy and contagion.
Recently, however, the range of the beneficiaries has grown larger. Governments now rely on central banks to buy their bonds at relatively high prices, regardless of the risk profile involved. And this year the European Central Bank and the Bank of England both committed themselves to buying substantial quantities of bonds issued by large corporations.
This report analyzes the traditional views on these corporate-bond purchases, puts forward two alternative explanations for these operations, and presents possible scenarios for the not-too-distant future.