Editing European Central Bank (section)

===Difference with US Federal Reserve===
In the [[Federal Reserve Bank|United States Federal Reserve Bank]], the Federal Reserve buys assets: typically, bonds issued by the Federal government.<ref name="Bernanke">{{cite web|first=Ben S.|last=Bernanke|date=1 December 2008|title=Federal Reserve Policies in the Financial Crisis|url=http://www.federalreserve.gov/newsevents/speech/bernanke20081201a.htm|access-date=23 October 2011|publisher=Board of Governors of the Federal Reserve System|location=Greater Austin Chamber of Commerce, Austin, Texas|format=Speech|quote=To ensure that adequate liquidity is available, consistent with the central bank's traditional role as the liquidity provider of last resort, the Federal Reserve has taken a number of extraordinary steps.}}</ref> There is no limit on the bonds that it can buy and one of the tools at its disposal in a financial crisis is to take such extraordinary measures as the purchase of large amounts of assets such as [[commercial paper]].<ref name="Bernanke" /> The purpose of such operations is to ensure that adequate liquidity is available for the functioning of the financial system.<ref name="Bernanke" />

The [[Eurosystem]], on the other hand, uses collateralized lending as a default instrument. There are about 1,500 eligible banks which may bid for short-term [[repurchase agreement|repo contracts]].<ref>In practice, 400–500 banks participate regularly. <br />{{citation|first1=Samuel|last1=Cheun|title=The collateral frameworks of the Eurosystem, the Federal Reserve System and the Bank of England and the financial market turmoil|date=December 2009|url=http://www.ecb.int/pub/pdf/scpops/ecbocp107.pdf|publisher=ECB|access-date=24 August 2011|first2=Isabel|last2=von Köppen-Mertes|first3=Benedict|last3=Weller}}</ref> The difference is that banks in effect borrow cash from the ECB and must pay it back; the short durations allow interest rates to be adjusted continually. When the repo notes come due the participating banks bid again. An increase in the number of notes offered at auction allows an increase in liquidity in the economy. A decrease has the contrary effect. The contracts are carried on the asset side of the European Central Bank's balance sheet and the resulting deposits in member banks are carried as a liability. In layman's terms, the liability of the central bank is money, and an increase in deposits in member banks carried as a liability by the central bank, means that more money has been put into the economy.{{efn|The process is similar, though on a grand scale, to an individual who every month charges $10,000 on his or her credit card, pays it off every month, but also withdraws (and pays off) an additional $10,000 each succeeding month for transaction purposes. Such a person is operating "net borrowed" on a continual basis, and even though the borrowing from the credit card is short-term, the effect is a stable increase in the money supply. If the person borrows less, less money circulates in the economy. As people borrow more, the money supply increases. An individual's ability to borrow from his or her credit card company is determined by the credit card company: it reflects the company's overall judgment of its ability to lend to all borrowers, and also its appraisal of the financial condition of that one particular borrower. The ability of member banks to borrow from the central bank is fundamentally similar.{{citation needed|date=September 2015}} }}

To qualify for participation in the auctions, banks must be able to offer proof of appropriate collateral in the form of loans to other entities. These can be the public debt of member states, but a fairly wide range of private banking securities are also accepted.<ref name="The ECB and the Eurosystem">{{cite journal|last=Bertaut|first=Carol C.|year=2002|title=The European Central Bank and the Eurosystem|url=http://www.bos.frb.org/economic/neer/neer2002/neer202e.pdf|journal=New England Economic Review|issue=2nd quarter|pages=25–28|access-date=8 December 2010|archive-date=19 October 2012|archive-url=https://web.archive.org/web/20121019052919/http://www.bos.frb.org/economic/neer/neer2002/neer202e.pdf|url-status=dead}}</ref>  The fairly stringent membership requirements for the European Union, especially with regard to [[sovereign debt]] as a percentage of each member state's gross domestic product, are designed to ensure that assets offered to the bank as collateral are, at least in theory, all equally good, and all equally protected from the risk of inflation.<ref name="The ECB and the Eurosystem" />