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Elena Rancoita

19 October 2021
MACROPRUDENTIAL BULLETIN - FOCUS
Macroprudential Bulletin Issue 15, 2021
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Abstract
By means of a theoretical model, this analysis finds that without policy intervention, transition risk generates excessive risk-taking by banks. This finding provides a theoretical justification for the introduction of climate prudential policies to address transition risks.
JEL Code
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
25 November 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2020
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Abstract
This box explores the potential macroeconomic impact of different capital buffer replenishment paths. Model simulations show that replenishing capital buffers too early or too aggressively could be counterproductive and prolong the economic downturn. While the costs of restoring capital buffers to pre-crisis levels are not excessive if the economy moves along the central projection scenario, a weaker economic environment would increase bank losses and result in a more extensive use of capital buffers. In such a scenario, a later and more gradual restoration of capital buffers would be warranted.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E17 : Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
25 November 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2020
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Abstract
Euro area banks’ loan loss provisions increased markedly in the first half of 2020 amid the sharp contraction in economic activity, while provisioning levels were widely dispersed across both countries and banks within the same countries. This box aims at identifying drivers of the variation in banks’ provisioning and its possible implications. The wide dispersion of provisioning levels may partly reflect the pronounced economic uncertainty, the heterogeneous sectoral impacts of the COVID-19 crisis as well as the diversity of the impact of public support measures for borrowers. However, it is possible that some of the variation in provisions across banks reflects inadequate provisioning by some banks, in part due to profitability constraints and optimistic assumptions about the economic recovery in estimating credit losses under new, more forward-looking IFRS 9 accounting standard. From a financial stability perspective, it is helpful that euro area banks have generally avoided excessive procyclicality in provisioning, but those with less conservative policies may still need to raise provisioning (and coverage) levels so as to ensure investor trust in asset valuations and transparency in financial statements.
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
24 November 2020
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 2, 2020
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Abstract
Fiscal, prudential and monetary authorities have responded to the coronavirus (COVID-19) pandemic by providing unprecedented support to the real economy. Importantly, the combination of policy actions has done more to limit the materialisation of risks to households and firms than each policy individually. Exploiting complementarities and ensuring the most effective combination of policies will, however, be equally important when authorities start to phase out the various related relief measures. The fact that in particular the enacted fiscal and labour market measures, as well as their phase-out schedules, differ substantially across the largest euro area economies further complicates the challenge of obtaining the most effective policy combination. Along with the reduction in support to the real economy, the phasing-out of policy measures could adversely affect banks’ balance sheets and capitalisation. Resulting cliff effects in policy support are relevant for prudential authorities in the context of their future decisions on the replenishment of capital buffers. The results of the analysis suggest there are substantial risks associated with the early withdrawal of policy support, although the analysis does not account for the medium-term risks of protracted policy support.
JEL Code
C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
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
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
19 October 2020
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 11
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Abstract
This article discusses capital buffer usability in the Basel III framework. Although buffers are intended to be used in a crisis, a number of factors can prevent banks from drawing them down in case of need, with potentially adverse effects for the economy. The article reviews the functioning of the framework in the COVID-19 crisis and outlines possible implications for future policy design.
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
24 September 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 6, 2020
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Abstract
Firms’ demand for bank loans has been at a record-high level since March 2020 as firms have scrambled to bridge liquidity gaps originating from the COVID-19 shock. To help banks accommodate the surge in loan demand at favourable conditions, most euro area governments have implemented schemes of public guarantees on bank loans. These transfer some of the arising credit risk and eventual credit losses from banks to governments, thereby mitigating the costs for banks. The features of the loan guarantee schemes’ vary across countries as well as their actual use, with higher take-ups being reported in Spain and France, while lower amounts have been taken up in Italy and Germany. Moreover, SMEs in the sectors most affected by the crisis (e.g. trade, tourism, transport) seem to have benefited the most from these programmes. Overall, public loan guarantee schemes have played a key role in supporting corporate lending dynamics since April and preserving favourable lending conditions. The phasing out of these schemes needs to be carefully aligned with corporate financing needs in the months ahead, while their potential side-effects warrant monitoring.
JEL Code
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
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
26 May 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2020
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Abstract
As authorities have sought to soften the impact of the coronavirus pandemic, a key concern has been the potential for the banking sector to ration credit and amplify the economic cost. Euro area real GDP could decrease substantially in 2020. For example, it could be 9 percentage points lower than expected before the pandemic shock, with a rebound in 2021 as confinement policies are reversed (see Chart A).
20 February 2020
WORKING PAPER SERIES - No. 2376
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Abstract
This paper examines the interactions of macroprudential and monetary policies. We find, using a range of macroeconomic models used at the European Central Bank, that in the long run, a 1% bank capital requirement increase has a small impact on GDP. In the short run, GDP declines by 0.15-0.35%. Under a stronger monetary policy reaction, the impact falls to 0.05-0.25%. The paper also examines how capital requirements and the conduct of macroprudential policy affect the monetary transmission mechanism. Higher bank leverage increases the economy's vulnerability to shocks but also monetary policy's ability to offset them. Macroprudential policy diminishes the frequency and severity of financial crises thus eliminating the need for extremely low interest rates. Countercyclical capital measures reduce the neutral real interest rate in normal times.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
16 September 2019
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 8
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Abstract
The expansion of the EU macroprudential toolkit to also include capital buffers applied at sectoral level may require the cross-border recognition of these instruments. This article explores the relevance of sectoral cross-border credit provided via foreign branches or direct cross-border lending in the SSM area and analyses the effects of the implementation of mandatory reciprocity arrangements. Our findings provide some evidence supporting the introduction of mandatory reciprocity arrangements for sectoral capital buffers where exposures are material in order to ensure a level playing field and pre-empt future leakages. This is important to foster the effectiveness of macroprudential policies because financial services provided via foreign branches or direct cross-border exposures would otherwise not be subject to a macroprudential measure taken in a host Member State.
JEL Code
C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
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
29 March 2019
WORKING PAPER SERIES - No. 2260
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Abstract
We analyse the interaction between monetary and macroprudential policies in the euro area by means of a two-country DSGE model with financial frictions and cross-border spillover effects. We calibrate the model for the four largest euro area countries (i.e. Germany, France, Italy, and Spain), with particular attention to the calibration of cross-country financial and trade linkages and country specific banking sector characteristics. We find that countercyclical macroprudential interventions are supportive of mon-etary policy conduct through the cycle. This complementarity is significantly reinforced when there are asymmetric financial cycles across the monetary union, which provides a case for targeted country-specific macroprudential policies to help alleviate the burden on monetary policy. At the same time, our findings point to the importance of taking into account cross-border spillover effects of macroprudential measures within the Monetary Union.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
Network
Research Task Force (RTF)
25 November 2015
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 2, 2015
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Abstract
In a monetary union, targeted national macroprudential policies can be necessary to address asymmetric financial developments that are outside the scope of the single monetary policy. This special feature discusses and, using a two-country structural model, provides some model-based illustrations of the strategic interactions between a single monetary policy and jurisdiction-specific macro-prudential policies. Counter-cyclical macro-prudential interventions are found to be supportive to monetary policy conduct through the cycle. This complementarity is significantly reinforced when there are asymmetric financial cycles across the monetary union.
JEL Code
G00 : Financial Economics→General→General