In the Mid 1980s, the ECCB established an interbank market, in an effort to assist the commercial banks to manage their liquidity, and to facilitate the lending and borrowing of available reserve balances between commercial banks, in a timely and cost effective manner. The ECCB performed the role of broker and guaranteed the funds; interest rates were fixed.
In October 2001, the ECCB introduced changes to the arrangements governing the Interbank Market. Under the new arrangement, a Bulletin Board Service, facilitated by the Central Bank, replaces the ECCB’s brokerage service. This service can be used by the commercial banks on a daily basis to advertise funds available for lending and to source funds for borrowing. Commercial banks negotiate on a bilateral basis for the use of excess funds in the banking system and set the terms and conditions of each loan without the intervention of the ECCB. In the conduct of Interbank transactions, commercial banks can either enter into informal unsecured agreements, or can choose to enter into secured arrangements, whether by offering collateral or by repurchase agreements.
The changes to the Interbank Market arrangements are expected to result in market determination of the fund rates and contribute to the removal of the rigidity of interest rates in the Currency Union. This is in keeping with efforts by the Central Bank to develop and deepen the money and capital markets of the ECCU.