This paper investigates the impact of central bank swap lines during the 2020 pandemic using micro-level data. Institutions relying on these swap lines tend to be better capitalized due to stringent collateral requirements. Combining data on FX derivative contracts with dealers that draw on USD swap lines at the Bank of England, we find that swap line participants engage in more favorable pricing of forward contracts, reduce their gross outstanding FX exposures, and increase their net supply of USD forwards to non-financial institutions. Our findings support the use of swap lines in reducing FX market mispricing and providing cross-border liquidity.

Through large-scale asset purchases, widely known as quantitative easing (QE), central banks around the world have affected the supply of safe assets by buying quasi-safe bonds in exchange for truly safe reserves. We examine the pricing effects of the European Central Bank's bond purchases in the 2015-2021 period on an international panel of bond safety premia from four highly rated countries: Denmark, Germany, Sweden, and Switzerland. We find statistically significant negative effects for all four countries. This points to an important international spillover channel of QE programs to bond safety premia that operates by increasing the outstanding amount of truly safe assets.

We develop a quantitative macroeconomic framework with heterogeneous financial intermediaries and active liquidity management. In the model, banks manage uninsured, idiosyncratic deposit withdrawal risk through an iterative over-the-counter interbank market, which generates a network-like structure with endogenous intensive and extensive margins and results in equilibrium assortative matching based on balance sheet size. We validate our framework using administrative data from Germany that encompasses the entire universe of bank-to-bank loan exposures. Our findings strongly support the presence of assortative matching in the data, thereby confirming the model's key mechanism. We show that assortative matching is inefficient: it leads to reduced trading volumes and a broader region of inaction in the interbank market, a smaller and riskier banking sector, and a macroeconomy that is characterized by lower aggregate output and consumption. Using our empirically validated framework, we explore secular trends in interbank trading, the roles of liquidity and interest rate corridor policies, and the impact of deposit market power.