This paper quantifies the reaction of euro-area money markets to the European Central Bank’s crisis-time policy announcements.
Using a high-frequency event-study methodology on the 3-month EURIBOR–OIS spread, we find that conventional rate cuts, fiscal
stimulus packages and system-wide recapitalisation schemes rapidly compressed interbank credit and liquidity risk premia.
Conversely, decisions to keep rates on hold and ad-hoc, bank-specific bail-outs amplified stress, widening the spread by up to 25
bps within two trading days. Liquidity-support operations were effective at the outset but lost traction as the crisis deepened; capital
injections and guarantees on bank liabilities, by contrast, generated durable reductions in credit risk. Announcement effects were
neither uniform nor symmetric: their magnitude and persistence depended on the prevailing market conditions—liquidity shortages
versus solvency concerns—characterising each phase of the crisis.