SPEECH
25 May 2022
Normalising policy in non-normal times
Normalisation does not mean removing stimulus outright, says Executive Board member Fabio Panetta. It is a process of gradually reducing that stimulus in a way that firmly anchors the inflation path at 2% over the medium term. This process is already under way in the euro area.
Speech
PUBLICATION
25 May 2022
Financial stability, war and inflation
The financial stability outlook has weakened as higher inflation and Russia’s war in Ukraine test the recovery after the pandemic, our latest Financial Stability Review shows. Asset prices may fall if the conflict escalates. Borrowers are also facing emerging pressures.
Financial Stability Review
SCHOLARSHIP
25 May 2022
ECB Scholarship for Women
There is one week left to apply for the ECB Scholarship for Women. The programme offers €10,000 grants and expert mentoring to women doing a master’s degree in economics, statistics, engineering or computing. Applications close on Wednesday, 1 June 2022.
Apply now: Scholarship- 25 May 2022
- PRESS RELEASERelated
- 25 May 2022
- FINANCIAL STABILITY REVIEW
- 24 May 2022
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 24 May 2022
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 24 May 2022
- PRESS RELEASE
- 23 May 2022
- EURO AREA FINANCIAL VEHICLE CORPORATION STATISTICSAnnexes
- 23 May 2022
- EURO AREA FINANCIAL VEHICLE CORPORATION STATISTICS
- 23 May 2022
- EURO AREA INVESTMENT FUNDSAnnexes
- 23 May 2022
- EURO AREA INVESTMENT FUNDS
- 25 May 2022
- Presentation by Philip R. Lane, Member of the Executive Board of the ECB, at the 20th anniversary of the Germán Bernácer Prize
- 25 May 2022
- Speech by Fabio Panetta, Member of the Executive Board of the ECB, at a policy lecture hosted by the SAFE Policy Center at Goethe University and the Centre for Economic Policy Research (CEPR)
- 20 May 2022
- Presentation by Philip R. Lane, Member of the Executive Board of the ECB, at the Nobel Symposium in Economics on "Covid-19 and the Economy: Policies and Impacts"
- 19 May 2022
- Speech by Luis de Guindos, Vice-President of the ECB, at the 20th annual symposium on “Building the financial system of the 21st century: an agenda for Europe and the United States” organised by the Program on International Financial Systems and Harvard Law School (by videoconference)
- 16 May 2022
- Keynote speech by Fabio Panetta, Member of the Executive Board of the ECB, at the National College of Ireland
- 7 May 2022
- Interview with Christine Lagarde, President of the ECB, conducted by Miha Jenko and published on 7 May 2022
- 6 May 2022
- Interview on Twitter with Frank Elderson, Member of the Executive Board of the ECB, conducted and published on 6 May 2022
- 5 May 2022
- Interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Marco Zatterin
- 3 May 2022
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jan Mallien and Frank Wiebe on 29 April 2022
- 1 May 2022
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Adolfo Lorente and Manu Álvarez on 26 April
- 23 May 2022
- Blog post by Christine Lagarde, President of the ECBDetails
- Summary
- As the expected date of interest rate lift-off draws closer, it gets more important to clarify the path of policy normalisation ahead of us – especially given the complex environment that monetary policy in the euro area is facing, says President Christine Lagarde in The ECB Blog.
- 10 February 2022
- Blog post by Philip R. Lane, Member of the Executive Board of the ECBDetails
- Summary
- Looking at inflation dynamics, the relative price dislocations associated with bottlenecks are intrinsically short-term, Chief Economist Philip R. Lane writes in The ECB Blog. An increase in the relative price for a scarce item will stimulate new supply, while cooling demand.
- 31 December 2021
- Blog post by Christine Lagarde, President of the ECBEnglishOTHER LANGUAGES (16) +Details
- Summary
- Europe and the euro have become inseparable, President Christine Lagarde writes in The ECB Blog to mark the 20th anniversary of euro banknotes and coins. She recalls her first encounter with a euro banknote, and reflects on how far the euro has come and what lies ahead.
- 19 November 2021
- Blog post by Fabio Panetta, Member of the Executive Board of the ECBDetails
- Summary
- To continue playing its role as the anchor of the monetary system, central bank money will need to respond to evolving needs, says Executive Board member Fabio Panetta. This means that we must intensify the work on central bank digital currencies.
- 4 November 2021
- Blog post by Christine Lagarde, President of the ECBEnglishOTHER LANGUAGES (16) +Details
- Summary
- The COP26 summit is a vital opportunity to set out a clear path towards a zero-carbon world, President Lagarde writes in a blog post. While the road ahead may seem daunting, she argues that a credible transition path will need clear signposts to break it up into more manageable stages.
- 25 May 2022
- FINANCIAL STABILITY REVIEWAnnexes
- 25 May 2022
- ANNEX
Related- 25 May 2022
- PRESS RELEASE
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- This box discusses the transmission mechanisms of macroprudential capital measures and offers important lessons for the assessment of their effectiveness and the design of the capital buffer framework. First, building capital buffers during good times will be effective in increasing banking system resilience, but the muting effect on the build-up of financial imbalances is likely to be limited as bank capital constraints are not usually binding in good times. Second, the economic cost of building capital buffers is also likely to be low when the economy is experiencing an upswing or when banking sector conditions are favourable. Third, the availability and release of capital buffers during crises can effectively support credit supply and economic activity by alleviating potential bank capital constraints when losses materialise. Therefore, enhancing the role of releasable capital buffers within the macroprudential framework and building them up when times are good appears to be a robust policy strategy.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
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
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- Synthetic leverage has become an important feature of the financial system. In our analysis, we propose two complementary measures that explore the link between synthetic leverage and margining in equity derivative portfolios of non-banks. We show that leverage risk can materialise through margin calls and uncovered counterparty exposure during periods of high market volatility.
- JEL Code
- G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- While euro area banks’ direct exposures to Russia are limited overall, disruptions in energy and commodity markets pose risks to economic activity in the euro area that could adversely affect banks’ balance sheets. To examine these risks, the ECB has conducted a vulnerability analysis which combines three macroeconomic scenarios with stress-testing tools and does not include interactions with banks. The results obtained from the exercise confirm that the euro area banking sector is resilient to the macroeconomic ramifications of the war in Ukraine.
- 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
C54 : Mathematical and Quantitative Methods→Econometric Modeling→Quantitative Policy Modeling
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- Relying on an economic value approach and exploiting granular supervisory data on euro area banks, this box finds that the aggregate impact of higher interest rates on bank net worth would be moderately negative, but wide variations exist at the level of individual banks. Over time, derivatives have played an offsetting role, allowing banks to reduce their interest rate risk exposures arising from on- and off-balance-sheet positioning. In line with the expectation of higher interest rates, empirical evidence from EMIR data shows that banks have increased the volume of longer-dated interest rate swaps on which they receive floating rates, mainly trading these contracts with insurance companies and pension funds.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- This box looks at how Chinese macro risk shocks identified from movements in Chinese and US asset prices can affect global and European financial markets. It finds that shocks emanating from China have a noticeable effect on global financial markets, although the impact is smaller than in the case of shocks originating in the United States or global risk shocks. Shocks originating in China have larger spillover effects on commodity markets and they also affect European bank valuations, with a greater impact when general market conditions are more volatile.
- JEL Code
- D53 : Microeconomics→General Equilibrium and Disequilibrium→Financial Markets
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- Global inflation rates have increased substantially over the past year, driven by high energy prices, supply chain constraints and a rebound in demand. Inflation in the euro area is expected to remain elevated throughout 2022. Since the end of 2020, professional forecasters have repeatedly revised up their inflation projections as outturns surprised to the upside. Future developments in terms of energy prices and supply bottlenecks present upside risks to inflation. This box assesses the channels through which higher than expected inflation could affect financial stability, taking into account the effects for governments, firms, households and financial markets. All else being equal, higher inflation reduces the real value of outstanding debt but also for real incomes. At the same time, cost for expenses and debt servicing costs are rising. The combination of higher inflation and subdued growth can exacerbate the negative impact of inflation on financial stability amid limited scope for offsetting income increases.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E64 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Incomes Policy, Price Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- House prices increased substantially in advanced economies during the pandemic, fuelling concerns about possible price reversals and their implications for financial stability. Shifts in housing preferences, possibly reflecting a desire for more space coupled with less need for commuting due to teleworking modalities, and low interest rates have been important drivers of such recent strong house price growth across advanced economies. In the current low interest rate environment, increased sensitivity of house price growth to changes in real interest rates makes substantial house price reversals more likely. An abrupt repricing in the housing market – if the demand for housing were to go into reverse, for example, with a return to pre-pandemic work modalities, or real interest rates were to rise significantly – could produce spillovers to the wider financial system and economy.
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
R30 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→General
- 25 May 2022
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2022Details
- Abstract
- By the end of 2021, the aggregate profitability and debt positions of euro area non-financial corporations (NFCs) had recovered to pre-pandemic levels. However, these aggregate developments mask considerable heterogeneity among firms; smaller firms and firms with business models heavily impacted by the COVID-19 pandemic had not fully recovered. Against this backdrop, this box uses firm-level data for euro area NFCs to identify vulnerable firms based on the Altman Z-score, a measure of insolvency risk that uses five balance sheet and income statement ratios and their joint importance. It then matches bank and sovereign exposures to consider related risks associated with the sovereign-bank-corporate nexus., smaller firms and firms with business models heavily impacted by the COVID-19 pandemic had not fully recovered. Against this backdrop, this box uses firm-level data for euro area NFCs to identify vulnerable firms based on the Altman Z-score, a measure of insolvency risk that uses five balance sheet and income statement ratios and their joint importance. It then matches bank and sovereign exposures to consider related risks associated with the sovereign-bank-corporate nexus.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
H32 : Public Economics→Fiscal Policies and Behavior of Economic Agents→Firm
- 24 May 2022
- OTHER PUBLICATIONAnnexes
- 24 May 2022
- OTHER PUBLICATION
- 24 May 2022
- OTHER PUBLICATION
Related - 24 May 2022
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2022Details
- Abstract
- The stellar growth, volatility and financial innovation currently seen in the crypto-asset ecosystem, as well as the rising involvement of institutional investors, show how important it is to gain a better understanding of the potential risks crypto-assets could pose to financial stability if trends continue on this trajectory. This special feature provides an update on crypto-asset market developments and a general overview of risks stemming from unbacked crypto-assets and decentralised finance, given the way in which they have evolved and their specific characteristics and risks. Systemic risk increases in line with the level of interconnectedness between crypto-assets and the traditional financial sector, the use of leverage and lending activity. It is important to close regulatory and data gaps in the crypto-assets ecosystem to mitigate such systemic risks.
- JEL Code
- G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G19 : Financial Economics→General Financial Markets→Other
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
G51 : Financial Economics
- 23 May 2022
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2022Details
- Abstract
- The ECB is continuing its work on incorporating climate-related risks into assessments of financial stability. This includes a new analysis of disclosure, pricing and greenwashing risks in financial markets, as well as continued monitoring of financial institutions’ exposure to transition and physical risks. There is some encouraging evidence of better disclosure by non-financial corporations and increasing awareness of climate-related risks in financial markets. Progress made by banks, however, has been more limited. Established and newer metrics show no clear evidence of a reduction in climate-related risks, revealing instead a potential for amplification mechanisms stemming from exposure concentration, cross-hazard correlation and financial institutions’ overlapping portfolios. These findings can inform evidence-based international and European policy debates around climate-related corporate disclosure, standards for sustainable financial instruments and climate-related prudential policies. More generally, amid high uncertainty around governments’ transition policies in an environment of volatile energy prices, further investments in the transition to a net-zero economy would also have a positive impact on medium-term growth and energy security.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G20 : Financial Economics→Financial Institutions and Services→General
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental Effects
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 23 May 2022
- SURVEY OF MONETARY ANALYSTS
- 20 May 2022
- WORKING PAPER SERIES - No. 2665Details
- Abstract
- The analysis of the conditions under which, and extent to which climate-adjusted financial risk assessment affects firms’ investment decisions in the low-carbon transition, and the realisation of the climate mitigation trajectories, still represent a knowledge gap. Filling this gap is crucial to assess the “double materiality” of climate-related financial risks. By tailoring the EIRIN Stock-Flow Consistent model, we provide a dynamic balance sheets assessment of climate physical and transition risks for the euro area, using the climate scenarios of the Network for Greening the Financial System (NGFS). We find that an orderly transition achieves important co-benefits already in the mid-term, with respect to carbon emissions abatement, financial stability, and economic output. In contrast, a disorderly transition can harm financial stability, thus limiting firms’ capacity to invest in low-carbon activities that could decrease their exposure to transition risk and help them recover from climate physical shocks. Importantly, investors’ climate sentiments, i.e. their anticipation of the impact of the carbon tax across NGFS scenarios, play a key role for smoothing the transition in the economy and finance. Our results highlight the importance for financial supervisors to consider the role of firms and investors’ expectations in the low-carbon transition, in order to design appropriate macro-prudential policies for tackling climate risks.
- JEL Code
- B59 : History of Economic Thought, Methodology, and Heterodox Approaches→Current Heterodox Approaches→Other
Q50 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→General
- 19 May 2022
- WORKING PAPER SERIES - No. 2664Details
- Abstract
- This paper documents a durable increase in the cross-sectoral dispersion of earnings expectations during the COVID-19 crisis. The rise in dispersion of earnings forecasts can be explained by the introduction of lockdown measures, which had a particularly adverse impact on the travel sector. Accordingly, in terms of earnings expectations, countries that are relatively independent of the travel sector were least affected by a tightening of lockdowns. At the same time, vaccinations have been a game changer: more stringent lockdown measures added far less to the cross-sectoral dispersion in earnings expectations once vaccines started to be rolled out in late 2020. Going forward, the dispersion in earnings expectations continues to stand at elevated levels.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G10 : Financial Economics→General Financial Markets→General
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 19 May 2022
- WORKING PAPER SERIES - No. 2663Details
- Abstract
- Using large panel data of public and private firms, this paper dissects the growth of bond financing in the Euro Area through the lens of the cross-section of issuers. In recent years, the composition of bond issuers has shifted, with the entry of many smaller and riskier issuers. New issuers invest and grow, instead of simply repaying bank loans. Moreover, holdings of ‘buy-and-hold’ bond investors are large in aggregate but small for weaker issuers. Nevertheless, the bond investors’ sell-off after March 2020 was largely directed at bonds of larger, safer issuers. This micro-evidence can shed light on the implications of corporate bonds market development for smaller firms and financial stability.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy - Network
- Research Task Force (RTF)
- 19 May 2022
- OCCASIONAL PAPER SERIES - No. 294Details
- Abstract
- The paper provides an overview of studies on the social and private costs of retail payments conducted since 2013 in nine EU countries and collates the results obtained. Social costs of retail payments are the overall costs resulting from providing payment services to society and deriving from the resource costs incurred by all parties along the payment chain. Private costs, in contrast, are the costs incurred by the individual stakeholder only, such as banks and other payment intermediaries. Understanding the social and private costs of retail payments is crucial for assessing the impact of the rapidly changing retail payment landscape, such as the shift to electronic payments, and for designing strategies for moving towards cost efficient retail payments.
- JEL Code
- D23 : Microeconomics→Production and Organizations→Organizational Behavior, Transaction Costs, Property Rights
D24 : Microeconomics→Production and Organizations→Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity
O52 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Europe
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
- 16 May 2022
- EURO AREA BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATISTICS - QUALITY REPORTAnnexes
- 16 May 2022
- ANNEX
- 13 May 2022
- WORKING PAPER SERIES - No. 2662Details
- Abstract
- We study a model of financial intermediation, payment choice, and privacy in the digital economy. Cash preserves anonymity but cannot be used for more efficient online transactions. By contrast, bank deposits can be used online but do not preserve anonymity. Banks use the information contained in deposit flows to extract rents from merchants in need of financing. Payment tokens issued by digital platforms allow merchants to hide from banks but enable platforms to stifle competition. An independent digital payment instrument (a CBDC) that allows agents to share their payment data with selected parties can overcome all frictions and achieves the efficient allocation.
- JEL Code
- D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
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
- 13 May 2022
- WORKING PAPER SERIES - No. 2661Details
- Abstract
- In this study, we reassess the links between commercial bank ownership and lending growth during the 1996–2019 period. We find evidence that the lending activities of foreign state-controlled and foreign privately owned banks differ, particularly during different crisis type periods and origins. Foreign state-controlled banks’ loan growth rates are higher than those of foreign private-owned banks during host banking crises. By contrast, foreign state-controlled banks reduce their credit growth during a home banking crisis, while foreign private-owned banks increase lending in the host countries. Moreover, we find evidence that bank-specific characteristics were more important determinants of credit growth than ownership structure during the global financial crisis of 2008 and gain in importance in the post-crisis period.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
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
Interest rates
| Marginal lending facility | 0.25 % |
| Main refinancing operations (fixed rate) | 0.00 % |
| Deposit facility | − 0.50 % |
Inflation rate
Inflation dashboardExchange rates
| USD | US dollar | 1.0697 | |
| JPY | Japanese yen | 135.95 | |
| GBP | Pound sterling | 0.85073 | |
| CHF | Swiss franc | 1.0283 |
Financial stability
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