It stands for flight to quality; at an individual bank’s level, it refers to a reallocation tactic whereby banks encountering increased market interest rates tend to reduce lending to lower quality borrowers. This implies a shift in bank assets toward government securities and/or relatively safe loans. Flight to quality usually occurs when banks respond to a monetary tightening by shifting their loan portfolios toward safer borrowers.
At the interbank level, flight to quality could also refer to a situation where deposits move within the banking system from weak to strong banks. For example, deposits might be migrate from private banks to state and foreign banks.
Flight indicates flows of funds (capital) in large proportions in a specific direction.
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