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Ellen Ryan

10 October 2022
MACROPRUDENTIAL BULLETIN - FOCUS
Macroprudential Bulletin Issue 19, 2022
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Abstract
During the Covid-19 pandemic banks appear to have avoided lending to firms reliant on real estate as collateral. When banks applied downward revaluations to existing real estate collateral they were also less likely to extend loans, particularly to highly leveraged borrowers.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G20 : Financial Economics→Financial Institutions and Services→General
10 October 2022
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 19
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Abstract
This article examines links between Commercial Real Estate (CRE) markets and financial stability. The global financial crisis demonstrated the implications of CRE boom-bust cycles for the stability of many countries’ financial systems. However, CRE risk assessment and macroprudential policy frameworks remain in their infancy due to both the markets’ complexity and the persistence of data gaps. This article takes steps towards closing a number of data gaps by using euro area credit register data to examine the size and nature of links between euro area (EA) banks and CRE markets. Moreover, given that this dataset covers the COVID-19 pandemic crisis period, the operation of these transmission channels can be seen in action, providing insight into how economic theory plays out in practice.
JEL Code
G00 : Financial Economics→General→General
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
R30 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→General
2 March 2022
WORKING PAPER SERIES - No. 2652
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Abstract
The investment fund sector has expanded dramatically since the crisis of 2008-2009. As the sector grows, so do the implications of its risk-taking for the wider financial system and real economy. This paper provides empirical evidence for the existence of widespread risk-taking incentives in the investment fund sector, with a particular focus on incentives for synchronised, cyclical risk-taking which could have systemic effects. Incentives arise from the positive response of investors to returns achieved through cyclical risk-taking and non-linearities in the relationship between fund returns and fund flows, which may keep managers from fully internalising the effects of adverse outcomes on their portfolios. The fact that market discipline may not be sufficient to ensure prudential behaviour among managers, combined with the externalities of this risk-taking for the wider system, creates a clear case for macroprudential regulatory intervention.
JEL Code
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
12 October 2021
WORKING PAPER SERIES - No. 2605
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Abstract
We examine the transmission of monetary policy via the euro area investment fund sector using a BVAR framework. We find that expansionary shocks are associated with net inflows and that these are strongest for riskier fund types, reflecting search for yield among euro area investors. Search for yield behaviour by fund managers is also evident, as they shift away from low yielding cash assets following an expansionary shock. While higher risk-taking is an intended consequence of expansionary monetary policy, this dynamic may give rise to a build-up in liquidity risk over time, leaving the fund sector less resilient to large outflows in the face of a crisis.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
19 May 2021
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2021
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Abstract
This box examines the response of the investment fund sector to monetary policy shocks and the implications for financial stability. As the fund sector grows, so does its importance for the funding of economic activity and the transmission of monetary policy. But excessive risk-taking can also have damaging effects for the wider financial system. The box shows that expansionary shocks are associated with net inflows, which are strongest for riskier fund types, reflecting search for yield among euro area investors. Risk-taking by fund managers is also evident, as they shift away from low-yielding cash assets following an expansionary shock. While higher risk-taking is an intended consequence of expansionary monetary policy, this dynamic may give rise to a build-up of liquidity risk over time, leaving the fund sector less resilient to large outflows in the face of a crisis. For this reason, macroprudential policies that help restrict risk building up in the fund sector during extended periods of accommodative monetary policy should be developed.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
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 May 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 1, 2020
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Abstract
Euro area money market funds (MMFs) provide short-term credit to banks and non-financial corporations (NFCs) through purchases of commercial paper (CP). MMFs also play an important role in non-banks’ cash and liquidity management, given that the funds offer stable value and the possibility to redeem at short notice. As the coronavirus crisis deepened, euro area MMFs experienced large outflows and a number of them had difficulties in raising sufficient cash from maturing assets and liquid positions. Stress in MMFs can impair the financial system’s and the real economy’s access to short-term funding and liquidity during crises. Monetary policy action helped to improve financial market conditions more broadly, thereby also alleviating liquidity strains in the MMF sector.
JEL Code
G10 : Financial Economics→General Financial Markets→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
3 March 2020
FINANCIAL INTEGRATION AND STRUCTURE ARTICLE
Financial Integration and Structure in the Euro Area 2020
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Abstract
Brexit will result in a substantial structural change to the EU’s financial architecture over the coming years. It could be particularly significant for derivatives clearing, investment banking activities and securities and derivatives trading as the reliance on service provision by UK financial firms is more pronounced in these areas and the provision of such services is currently linked to the EU passporting regime. At the same time, the precise overall impact of Brexit on the EU’s future financial architecture in general – and on these specific areas in particular – is difficult to predict at this stage, and may change over time. This special feature makes a first attempt at analysing some of the factors that may affect the EU’s financial architecture post-Brexit. It focuses on areas which currently show strong reliance on the UK and are of particular relevance for the ECB under its various mandates.