Central to these conditions are developments in benchmark interest rates. These comprise mainly the key ECB interest rates, money market rates and government bond yields, with the latter containing the term structure of risk-free rates, domestic sovereign credit risk and liquidity premia (see Chart 1). These rates are the main determinants of the conditions of direct fi nancing in fi nancial markets for both non-fi nancial and fi nancial corporations and, consequently, for the wholesale market funding and deposit funding of banks. In the euro area, bank-based fi nancing is the predominant.
