XXVI Edition

14-15-16 December 2017"

Unconventional monetary policy and bank stability in the euro area

Avalos Fernando, Bank for International Settlements
Mamatzakis Emmanuel, University of Sussex, School of Business

We assess the impact of the ECB’s unconventional monetary policy on bank stability in the euro-area during the period 2007-2015. We rely on a wide panel of euro area banks whilst we take into account bank-specific control variables, in addition to macroeconomic controls. We employ various measures that try to capture the effect of the broad array of programmes used by the ECB to implement quantitative easing (QE), and control for the effect of conventional interest rate policy (CIRP), while also allowing for a differential effect of negative (or very low) interest rate policy (NIRP). The results suggest that looser CIRP tends to weaken the size of euro area banks’ loss-absorbing buffers, but NIRP moderates that effect, and it may even strengthen the buffers, contributing to financial stability. Moreover, quantitative easing (QE) enhances bank level stability overall. However, UMP (both NIRP and QE) appears to have increased the fragility of banks in the member states hardest hit by the 2011 sovereign debt crisis. We show that the financial stability benefits of UMP were mainly captured by the core euro area countries (France, Germany, Luxembourg and Netherlands). If the banks of those countries are removed from the sample, the impact of UMP on the remaining banks is comparable to the impact on the banks of the countries most affected by the sovereign debt crisis.

Area: Monetary Policy and Central Banking

Keywords: Unconventional monetary policy, bank stability, asset purchases

Paper file

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