THE ECB BLOG
15 May 2024
More credit applications despite higher rates
Despite rising interest rates, more consumers are applying for loans. This demand comes mainly from households with lower income. The ECB Blog takes a closer look into credit applications and how they affect banks’ credit standards and credit issuance to households.
Read The ECB Blog
INTERVIEW
6 May 2024
Interview with El Confidencial
Chief Economist Philip R. Lane talks to the Spanish newspaper about the current economic outlook and monetary policy.
Read the interview
EDUCATIONAL
2 May 2024
ECB Scholarship for Women
Are you a woman enrolled, or about to enrol, in a master’s degree in economics, statistics, engineering or computing? Then check out the ECB Scholarship for Women! We’re offering grants of €10,000 and expert mentoring to 15 students.
Find out more and apply by 17 May- 16 May 2024
- PRESS RELEASERelated
- 16 May 2024
- FINANCIAL STABILITY REVIEW
- 14 May 2024
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 14 May 2024
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 10 May 2024
- GOVERNING COUNCIL DECISIONS - OTHER DECISIONSEnglishOTHER LANGUAGES (23) +
- 10 May 2024
- MONETARY POLICY ACCOUNTRelated
- 11 April 2024
- MONETARY POLICY DECISIONEnglishOTHER LANGUAGES (23) +
- 7 May 2024
- PRESS RELEASE
- 14 May 2024
- Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the conference “Setting the course for competitiveness and growth” at the German Chancellery, Berlin
- 10 May 2024
- Slides by Piero Cipollone, Member of the Executive Board of the ECB, at a meeting of Central Bank Governors of the Center for Latin American Monetary Studies (CEMLA) in Madrid
- 9 May 2024
- Slides by Piero Cipollone, Member of the Executive Board of the ECB, at a seminar organised by the Italian Companies and Exchange Commission (CONSOB) in Rome
- 2 May 2024
- Guest lecture by Philip R. Lane, Member of the Executive Board of the ECB, at Stanford Graduate School of Business
- 29 April 2024
- Introductory remarks by Luis de Guindos, Vice-President of the ECB, at a Euro 50 Group meeting
- 6 May 2024
- Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted on 30 April 2024 by Miquel Roig, Javier Jorrín and Óscar Giménez and published on 6 May 2024
- 23 April 2024
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Éric Albert on 16 April 2024 and published on 23 April 2024
- 19 March 2024
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Michalis Psilos
- 7 February 2024
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Martin Arnold on 2 February 2024
- 3 February 2024
- Interview with Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Jonathan Witteman on 29 January 2024
- 15 May 2024
- Despite rising interest rates, more consumers are applying for loans. This demand comes mainly from households with lower income. The ECB Blog takes a closer look into credit applications and how they affect banks’ credit standards and credit issuance to households.Details
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 6 May 2024
- Surprisingly strong employment growth in an environment of weak economic activity has recently led to declining labour productivity in the euro area. The ECB Blog discusses causes and prospects for a cyclical recovery in productivity growth.Details
- JEL Code
- J21 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Force and Employment, Size, and Structure
J24 : Labor and Demographic Economics→Demand and Supply of Labor→Human Capital, Skills, Occupational Choice, Labor Productivity
J22 : Labor and Demographic Economics→Demand and Supply of Labor→Time Allocation and Labor Supply
J23 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Demand
- 2 May 2024
- Some banks reduce balance sheet items around reporting dates. Such “window dressing” camouflages the true risks of a bank, impairs markets as well as bank resilience and supervision. The ECB Blog looks at how regulators and supervisors are taking action.Details
- JEL Code
- G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 18 April 2024
- We updated our data on the impact of climate change on the financial system. How green are green bonds and banks’ loan portfolios? How strongly could they be affected by natural hazards? The ECB Blog discusses these and other new insights from the data.Details
- JEL Code
- Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
Q56 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Environment and Development, Environment and Trade, Sustainability, Environmental Accounts and Accounting, Environmental Equity, Population Growth
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G29 : Financial Economics→Financial Institutions and Services→Other
- 3 April 2024
- Governments and central banks can shield the economy from shocks with their decisions. The ECB Blog looks at a recent high-level conference that analysed the interaction of fiscal and monetary policy and questioned some long-held beliefs.Details
- JEL Code
- E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
- 16 May 2024
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2024Details
- Abstract
- Recent stress episodes have shown how leverage in the non-bank financial intermediation (NBFI) sector can be a source of systemic risk and amplify stress in the wider financial system. Prominent examples of leverage-related risk in the NBFI sector include the role of leveraged hedge funds in the US Treasury market in March 2020, liability-driven investment funds in UK gilt markets in September 2022 and the failure of Archegos Capital Management in March 2021. In response to these events, policymakers around the world have launched a range of initiatives to contain risks from leverage in the NBFI sector more broadly. A key takeaway from these recent experiences and policy initiatives is that no single tool can be uniformly applied to address risks stemming from NBFI leverage. An effective policy response requires a broad range of tools to be made available, which should be appropriately tailored to the specific circumstances and can serve as complements to each other. Given the significant cross-border and cross-sector dimension of these risks, close coordination and cooperation between various authorities is essential, ensuring that risks are addressed from a system-wide perspective.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G10 : Financial Economics→General Financial Markets→General
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 16 May 2024
- FINANCIAL STABILITY REVIEW - BOXAssessing the liquidity preparedness of investment funds to meet margin calls in derivatives marketsFinancial Stability Review Issue 2, 2024Details
- Abstract
- Recent episodes of liquidity stress highlight the need to monitor funds’ liquidity preparedness to meet margin calls on derivatives. This box proposes four indicators of fund-level liquidity preparedness to meet margin calls to identify potential vulnerabilities that may require higher cash buffers and/or more diversified high-quality liquid assets (HQLA). Both the stock of initial margin posted and the flow of initial and variation margin are examined, offering complementary insights. The first set of indicators considers the ratios between the volumes of margin stock or flow over cash holdings, while the second set replaces cash with HQLA. The results highlight how cash alone may not be enough to cover margin calls, thus emphasising the importance of funds relying on diverse and reliable sources of liquidity and collateral. Moreover, existing vulnerabilities in the fund sector can lead to procyclical behaviours, amplifying market-wide stress and spreading to other market participants.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G10 : Financial Economics→General Financial Markets→General
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 16 May 2024
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2024Details
- Abstract
- Around 20% of euro area bank funding is provided by the non-bank financial intermediation (NBFI) sector, mainly via market-based instruments such as bonds and repurchase agreements. The reliance on NBFI funding varies in line with banks’ business models, with some banks obtaining about a third of their funds from the NBFI sector. NBFI entities also display a strong preference for some types of funding instruments, suggesting limited substitutability across sectors and financing sources. Focusing on the repo market, we test funding substitution by euro area banks across sectors when facing a reduction in repo funds. Banks can only replace about 25% of the outflows after repo funding falls. When the outflow comes from an investment fund, banks face an even larger reduction in repo funds. These results and some recent episodes of liquidity turmoil in the NBFI sector suggest that more widespread shocks could affect the ability of banks to secure funding.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 16 May 2024
- FINANCIAL STABILITY REVIEW - BOXFinancial stability risks from basis trades in the US Treasury and euro area government bond marketsFinancial Stability Review Issue 2, 2024Details
- Abstract
- Basis trades are arbitrage strategies which exploit mispricing between the spot price and the futures price of a given security. They improve market functioning but are also subject to funding and liquidity risks, especially when excessively leveraged. Hedge funds have built up leveraged exposures in the US Treasury market, giving rise to financial stability concerns. While risks are partly mitigated by already elevated margin requirements in the futures market, disruptions in the repo market could still force some entities to unwind their basis trades. Given the role of US Treasury bonds as global risk-free assets, dislocations resulting from widespread unwinding of basis trades could spill over into other jurisdictions and asset classes. Furthermore, a build-up of hedge fund exposures has also been observed in the euro area government bond market, but the size of basis trade activity seems contained.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 16 May 2024
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2024Details
- Abstract
- Implied equity market volatility has been low in recent quarters, in both absolute and relative terms, despite tighter monetary policy, rising geopolitical tensions and a balance of risks to economic growth tilted to the downside. This box discusses several factors that may have contributed to the low levels of implied equity market volatility. It describes how progress in bringing inflation down without a deep economic contraction has supported investor optimism and highlights how increasingly common short volatility strategies may also have suppressed implied equity market volatility. The box then examines the divergence of implied equity market volatility from the implied volatility in interest rate markets and discusses possible implications for financial stability. Elevated implied interest rate market volatility could point to downside macro-financial risks that seem not fully priced in by equity investors. Subdued implied equity market volatility – despite broader uncertainties – might suggest an underestimation of risks in equity markets and excessive risk-taking. Consequently, adverse economic surprises or geopolitical shocks could lead to significant market corrections. Large exposures in volatility instruments could, in turn, increase the likelihood of a disorderly correction.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 16 May 2024
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2024Details
- Abstract
- The rapid increase in interest rates observed over the last few years could weaken the ability of firms to service and roll over their debt and, consequently, worsen the outlook for bank asset quality. This box combines firm-level balance sheet data with loan-level data to assess the joint impact of resilient post-pandemic profitability and higher financing costs on the debt servicing capacity of euro area firms. The interest burdens of euro area firms are estimated to have increased only slightly, as higher revenues largely offset their higher interest payments. The impact of higher debt service costs has been disproportionately strong in the real estate sector, which has faced weakened demand, as well as in countries where floating-rate lending is prevalent. Some vulnerable firms may benefit from refinancing in a more favourable environment if market rates fall as expected. Banks should recognise credit distress promptly and offer viable solutions to firms which struggle to service their debt. However, even among firms with low interest coverage ratios, the majority of bank loans have not been restructured and remain performing..
- JEL Code
- G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
- 16 May 2024
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2024Details
- Abstract
- Euro area private markets have grown significantly in recent years, providing alternative funding sources for companies and diversification benefits for investors. While private markets are currently small relative to public markets and bank lending in the euro area, continued strong growth, financial innovation and opaqueness in private markets could contribute to financial stability risks. Adverse economic shocks could result in rising defaults, valuation corrections and losses for private funds and their investors. Additionally, such shocks may be exacerbated by multiple layers of leverage at company, fund and investor level, or by liquidity mismatches for some open-ended private funds. For banks, risks could arise from lending exposures to these markets, as well as from rising competition with private funds, which could incentivise lower underwriting and credit standards.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies
G30 : Financial Economics→Corporate Finance and Governance→General
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
- 16 May 2024
- FINANCIAL STABILITY REVIEWAnnexes
- 16 May 2024
- ANNEX
Related- 16 May 2024
- PRESS RELEASE
- 15 May 2024
- WORKING PAPER SERIES - No. 2941Details
- Abstract
- This paper proposes an operational approach to stress testing, allowing one to assess the banking sector’s vulnerability in multiple plausible macro-financial scenarios. The approach helps identify macro-financial risk factors of particular relevance for the banking system and individual banks and searches for scenarios that could push them towards their worst outcomes. We demonstrate this concept using a macroprudential stress testing model for the euro area. By doing so, we show how multiple-scenario stress testing can complement single-scenario stress tests, aid in scenario design, and evaluate risks in the banking system. We also show how stress tests and scenarios can be optimized to accommodate different mandates and instruments of supervisory and macroprudential agencies.
- JEL Code
- E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 15 May 2024
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2024Details
- Abstract
- The emergence of generative artificial intelligence (AI) tools represents a significant technological leap forward, with the potential to have a substantial impact on the financial system. Conceptually, AI brings both benefits and risks to the financial system. Practically, the overall impact will depend on how the challenges related to data, model development and deployment are addressed – both at the level of financial institutions and for the financial system as a whole. If new AI tools are used widely in the financial system and AI suppliers are concentrated, operational risk (including cyber risk), market concentration and too-big-to-fail externalities may increase. Furthermore, widespread AI adoption may harbour the potential for increased herding behaviour and market correlation. Should concerns arise that cannot be tackled by the current regulatory framework, targeted initiatives may need to be considered.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G10 : Financial Economics→General Financial Markets→General
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G20 : Financial Economics→Financial Institutions and Services→General
G41 : Financial Economics
- 15 May 2024
- OCCASIONAL PAPER SERIES - No. 348Details
- Abstract
- This paper provides an overview of stress-testing methodologies in Europe, with a focus on the advancements made by the European Central Bank’s Financial Stability Committee Working Group on Stress Testing (WGST). Over a four-year period, the WGST played a pivotal role in refining stress-testing practices, promoting collaboration among central banks and supervisory authorities and addressing challenges in the evolving financial landscape. The paper discusses the development and application of various stress-testing models, including top-down models, macro-micro models and system-wide models. It highlights the integration of new datasets and model validation efforts as well as the expanded use of stress-testing methodologies in risk and policy evaluation and in communication. The collaborative efforts of the WGST have demystified stress-testing methodologies and fostered trust among stakeholders. The paper concludes by outlining the future agenda for continued improvements in stress-testing practices.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
G01 : Financial Economics→General→Financial Crises
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
- 14 May 2024
- DISCUSSION PAPER SERIESDetails
- Abstract
- This paper discusses the recent wave of research that has emphasized the importance of measures of consumers’ inflation expectations. In contrast to other measures of expected inflation, such as for experts or financial market participants, consumers’ inflation expectations capture the broader distribution of societal beliefs about inflation. This research has revealed very significant deviations from traditional assumptions about rationality in consumers’ expectations formation. However, households do act on their beliefs about inflation, though in heterogeneous ways that can depart from the predictions of conventional economic models. Recent euro area experiences highlight the importance of tracking the degree of anchoring in consumers’ inflation expectations in a way that considers their inherent complexity, heterogeneity, and subjectivity. On average, consumers’ medium and longer-term expectations deviate noticeably in levels from central bank targets and, in contrast with expert expectations, often co-move more closely with shorter-term inflation news. By stepping up their engagement with the wider public, central banks may be able to influence expectations by building up greater knowledge and trust and thereby support more effective monetary transmission. Communication efforts need to be persistent because central banks must compete with many other demands on consumers’ attention.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 14 May 2024
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2024Details
- Abstract
- Geopolitical risk can be a threat to financial stability and the global economy. It can adversely affect the economy and financial markets and consequently have a negative impact on the funding, lending, solvency, asset quality and profitability of banks and non-banks alike. Recent history suggests that adverse geopolitical events alone are unlikely to cause a systemic crisis, although they may act as a trigger for systemic distress if they interact with pre-existing vulnerabilities. Looking ahead, policy authorities need to monitor geopolitical risk and assess its possible consequences for financial stability. Financial institutions should apply a combination of sound risk management and business diversification to address geopolitical risk.
- JEL Code
- G1 : Financial Economics→General Financial Markets
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 13 May 2024
- WORKING PAPER SERIES - No. 2940Details
- Abstract
- This study re-assesses the validity of the quantity theory of money (QTM) for the very long sample, 1870 to 2020, for 18 industrial countries using the dataset from Jordà et al. (2017). It considers structural changes in the economic and financial sectors and changes in monetary policy rameworks. Three findings are presented. First, the results from panel cointegration tests show that the long-run relationship between excess money growth and inflation holds if longer runs of data are used. Second, panel regressions confirm the presence of long and variable lags in the monetary policy transmission, as predicted by Milton Friedman. For the full sample, the average speed of adjustment from excess money growth to inflation in industrial countries was about two years amid heterogeneity across time and countries. Third, the results show that over recent decades, structural change - coinciding with the Great Moderation and, in part, reflecting changes in payment technologies - has led to a collapse of QTM.
- JEL Code
- B16 : History of Economic Thought, Methodology, and Heterodox Approaches→History of Economic Thought through 1925→Quantitative and Mathematical
B23 : History of Economic Thought, Methodology, and Heterodox Approaches→History of Economic Thought since 1925→Econometrics, Quantitative and Mathematical Studies
E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
N1 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations
- 10 May 2024
- WORKING PAPER SERIES - No. 2939Details
- Abstract
- In financial crises, the premium on liquid assets such as US Treasuries increases alongside credit spreads. This paper explains the link between the liquidity premium and spreads. We present a theory of endogenous bank fragility arising from a coordination friction among bank creditors. The theory’s implications reduce to a single constraint on banks, which is embedded in a quantitative macroeconomic model to investigate the transmission of shocks to spreads and economic activity. Shocks that reduce bank net worth exacerbate the coordination friction. In response, banks lend less and demand more liquid assets. This drives up both credit spreads and the liquidity premium. By mitigating the coordination friction, expansions of public liquidity reduce spreads and boost the economy. Empirically, we identify high-frequency exogenous variation in liquidity by exploiting the time lag between auction and issuance of US Treasuries. We find a causal effect on spreads in line with the calibrated model.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 10 May 2024
- OCCASIONAL PAPER SERIES - No. 347Details
- Abstract
- This paper presents the updated macroprudential stress test for the euro area banking system, comprising around 100 of the largest euro area credit institutions across 19 countries. The approach involves modelling banks’ reactions to changing economic conditions. It also examines the effects of adverse scenarios as defined for the European Banking Authority’s 2023 stress test on economies and the financial system as a whole by acknowledging a broad set of interactions and interdependencies between banks, other market participants and the real economy. Our results highlight the resilience of the euro area banking system and the important role banks’ adjustments play in the propagation of shocks to the financial sector and real economy.
- JEL Code
- C30 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→General
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
C54 : Mathematical and Quantitative Methods→Econometric Modeling→Quantitative Policy Modeling
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 8 May 2024
- WORKING PAPER SERIES - No. 2938Details
- Abstract
- Large-Scale Asset Purchases can impact the price of securities directly, when securities are targeted by the central bank, or indirectly through portfolio re-balancing of private investors. We quantify both the direct and the portfolio re-balancing impact, emphasizing the role of investor heterogeneity. We use proprietary security-level data on asset holdings of different investors. We measure the direct impact on security level, finding that it is smaller for securities predominantly held by more price-elastic investors, funds and banks. Comparing a security at the 90th percentile of the investor elasticity distribution to a security at the 10th percentile, the price impact is only two-thirds as large. To assess the portfolio re-balancing effects, we construct a novel shift-share instrument to measure investors’ quasi-exogenous exposure to central bank purchases, based on investors’ holdings of eligible securities before the QE program was announced. We show that funds and banks sell eligible securities to the central bank and re-balance their portfolios towards ineligible securities, with investors ex-ante more exposed to central bank purchases re-balancing more. Using detailed holdings data of mutual funds, we estimate that for each euro sold to the central bank, the average fund allocates 88 cents to ineligible assets and 12 cents to other eligible assets that the central bank does not buy in that time period. The price of ineligible securities held by more exposed funds increases compared to those held by less exposed funds, underscoring the portfolio re-balancing channel at work.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 8 May 2024
- WORKING PAPER SERIES - No. 2937Details
- Abstract
- We construct a novel measure of bank performance, investigate its determinants, and show that it affects bank resilience, lending behaviour and real outcomes. Using confidential and granular data, we measure performance against a market-based benchmark portfolio that mimics individual banks’ interest rate and credit risk exposure. From 2015 to mid-2022, euro area banks underperformed market benchmarks by around e160 billion per year, amid substantial heterogeneity. Structural factors, such as cost inefficiencies, rather than monetary or regulatory measures, were the main driver of bank underperformance. We also show that higher edge banks are less reliant on government support measures and less likely to experience the materialisation of interest rate or credit risk when hit by shocks. Using the euro area credit register and the pandemic shock for identification, we find that higher edge banks originate more credit, direct it towards more productive firms, and support more firm investment.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 6 May 2024
- WORKING PAPER SERIES - No. 2936Details
- Abstract
- In this paper I investigate the retirement-consumption puzzle in Italy for the period 2010-2016, using SHIW data. In order to address the endogeneity of the retirement decision, I estimate the effect of retirement by exploiting the exogeneity of pension eligibility in an instrumental variable approach; the IV regression is then applied in a regression discontinuity design where only households close to the eligibility point are considered. The eligibility-instrument is found to be a strong predictor of the retirement decision, and the estimated non-durable consumption drop is equal to 12.3%. When households are distinguished according to the gender of the household head, female-led households are found to undergo a consumption decline that is more than double that estimated for households with male heads. The data and the literature on the subject indicate that this large difference is likely related to the gender pay-gap that translates into a gender pension-gap. Moreover, the consumption decline appears to be concentrated in households in the lower part of the wealth distribution. Nonetheless, households in the lowest wealth quintile, do not show a significant consumption decline. The data suggests that this might be due to the impossibility for these households to further reduce their consumption at retirement, as they are mostly composed of essential expenditures.
- JEL Code
- E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J26 : Labor and Demographic Economics→Demand and Supply of Labor→Retirement, Retirement Policies
C01 : Mathematical and Quantitative Methods→General→Econometrics
- 6 May 2024
- LEGAL ACT
Interest rates
| Marginal lending facility | 4.75 % |
| Main refinancing operations (fixed rate) | 4.50 % |
| Deposit facility | 4.00 % |
Inflation rate
Inflation dashboardExchange rates
| USD | US dollar | 1.0832 | |
| JPY | Japanese yen | 168.43 | |
| GBP | Pound sterling | 0.85840 | |
| CHF | Swiss franc | 0.9800 |
Financial stability
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