The Implications of the Central Bank Policies for the Romanian Banking System Liquidity

The Romanian banking system experienced a liquidity shock in October 2008, following the Lehman Brothers collapse. The impact of external liquidity turmoil was a sudden stop of external inflows, slump in credit activity and higher money market volatility. Considering these strong implications, the National Bank of Romania (NBR) stepped in and injected liquidity in order to stabilize the banking sector. This study aims to analyze the ability of the central bank's open market operations to restore the banking system stability after the Lehman Brothers failure. The results confirm that the central bank policies improved the liquidity of Romanian banking system and prevented a disorderly deleverage. Nevertheless, due to the strong severity of the prolonged global financial and economic crisis, credit growth ratio didn’t return to the level experienced before October 2008.