Margherita Giuzio
Macro Prud Policy&Financial Stability
- Division
-
Market-Based Finance
- Current Position
-
Senior Financial Stability Expert
- Fields of interest
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Financial Economics,Macroeconomics and Monetary Economics
- Education
- 2013-2016
PhD in Financial Econometrics, European Business School Universität für Wirtschaft und Recht, Wiesbaden, Germany
- 2010-2012
MSc in Finance, University of Siena, Italy
- Professional experience
- 2018-
Senior Financial Stability Expert – Market-Based Finance Division, Directorate General Macro Prud Policy&Financial Stability, European Central Bank
- 14 November 2022
- WORKING PAPER SERIES - No. 2747Details
- Abstract
- Funds with an environmental, social and corporate governance (ESG) mandate have been growing rapidly in recent years and received inflows also during periods of market turmoil, such as March 2020, in contrast to their non-ESG peers. This paper investigates whether investors in ESG funds react differently to past negative performance, making these funds less sensitive to short-term changes in returns. In the absence of an ESG-label, we define an ESG- or Environmentally-focused fund if its name contains relevant words. The results show that ESG/E equity and corporate bond funds exhibit a weaker flow-performance relationship compared to traditional funds in 2016-2020. This finding may reflect the longer-term investment horizon of ESG investors and their expectation of better risk-adjusted performance from ESG funds in the future. We also explore how the results vary across institutional and retail investors and how they depend on the liquidity of funds’ assets and wider market conditions. A weaker flow-performance relationship allows funds to provide a stable source of financing to the green transition and may reduce risks for financial stability, particularly during turmoil episodes.
- JEL Code
- 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
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
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
- 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
- 21 December 2021
- WORKING PAPER SERIES - No. 2631Details
- Abstract
- This paper explores how the need to transition to a low-carbon economy influences firm credit risk. It develops a novel dataset which augments data on firms’ green-house gas emissions over time with information on climate disclosure practices and forward-looking emission reduction targets, thereby providing a rich picture of firms’ climate-related transition risk alongside their strategies to manage such risks. It then assesses how such climate-related metrics influence two key measures of firms’ credit risk: credit ratings and the market-implied distance-to-default. High emissions tend to be associated with higher credit risk. But disclosing emissions and setting a forward-looking target to cut emissions are both associated with lower credit risk, with the effect of climate commitments tending to be stronger for more ambitious targets. After the Paris agreement, firms most exposed to climate transition risk also saw their ratings deteriorate whereas other comparable firms did not, with the effect larger for European than US firms, probably reflecting differential expectations around climate policy. These results have policy implications for corporate disclosures and strategies around climate change and the treatment of the climate-related transition risk faced by the financial sector.
- JEL Code
- 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
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
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
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
- 19 October 2021
- MACROPRUDENTIAL BULLETIN - FOCUSMacroprudential Bulletin Issue 15, 2021Details
- Abstract
- Green capital markets are growing rapidly while being more resilient and integrated than traditional markets. Enhancing market structures and standards will help decrease greenwashing risk and foster further growth in green finance and the transition towards carbon neutrality.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
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
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
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
- 12 October 2021
- WORKING PAPER SERIES - No. 2605Details
- 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
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 270Details
- Abstract
- The financing structure of the euro area economy has evolved since the global financial crisis with non-bank financial intermediation taking a more prominent role. This shift affects the transmission of monetary policy. Compared with banks, non-bank financial intermediaries are more responsive to monetary policy measures that influence longer-term interest rates, such as asset purchases. The increasing role of debt securities in the financing structure of firms also leads to a stronger transmission of long-rate shocks. At the same time, short-term policy rates remain an effective tool to steer economic outcomes in the euro area, which is still highly reliant on bank loans. Amid a low interest rate environment, the growth of market-based finance has been accompanied by increased credit, liquidity and duration risk in the non-bank sector. Interconnections in the financial system can amplify contagion and impair the smooth transmission of monetary policy in periods of market distress. The growing importance of non-bank financial intermediaries has implications for the functioning of financial market segments relevant for monetary policy transmission, in particular the money markets and the bond markets.
- JEL Code
- E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G2 : Financial Economics→Financial Institutions and Services
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
- 19 May 2021
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2021Details
- 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
- 17 May 2021
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2021Details
- Abstract
- The ECB has been intensifying its quantitative work aimed at capturing climate-related risks to financial stability. This includes estimating financial system exposures to climate-related risks, upgrading banking sector scenario analysis and monitoring developments in the financing of the green transition. Considerable progress has been made on capturing banking sector exposures to firms that are subject to physical risks from climate change. While data and methodological challenges are still a focus of ongoing debates, our analyses suggest (i) somewhat concentrated bank exposures to physical and transition risk drivers, (ii) a prevalence of exposures amongst more vulnerable banks and in specific regions, (iii) risk-mitigating potential for interactions across financial institutions, and (iv) strong inter-temporal dependency conditioning the interaction of transition and physical risks. At the same time, investor interest in “green finance” continues to grow – but so-called greenwashing concerns need to be addressed to foster efficient market mechanisms. Both the assessment of risks and the allocation of finance to support the orderly transition to a more sustainable economy can benefit from enhanced disclosures, including of firms’ forward-looking emission targets, better data and strengthened risk assessment methodologies, among other things.
- 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
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 12 April 2021
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 12Details
- Abstract
- Large differences between the liquidity of investment funds’ assets and liabilities (i.e. liquidity mismatches) can create vulnerabilities in the financial system and expose funds to a risk of large outflows and sudden drops in market liquidity. From a macroprudential perspective, the current regulatory framework may not sufficiently address the risks stemming from liquidity mismatches in investment funds. By modelling the liquidity management of an open-ended fund, this article provides theoretical justification for pre-emptive policy measures such as cash buffers that enhance financial stability by helping to increase the resilience of investment funds.
- JEL Code
- 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
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
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- 24 November 2020
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2020Details
- Abstract
- Green financial markets are growing rapidly. Funds with an environmental, social and corporate governance mandate have grown by 170% since 2015 and 57% of them are domiciled in the euro area. The outstanding amount of green bonds issued by euro area residents has grown ten-fold over the same period. The large flows into ESG funds and green assets are expected to be sustained over time by increasing concerns around climate change, a gradual generational transfer of wealth towards millennials, and better disclosure and understanding of ESG risks. Given the financial stability risks from climate change, this box aims to understand the performance of such products and their potential for greening the economy. It focuses on the resilience of ESG funds and the absence of a consistent “greenium” – a lower yield for green bonds compared with conventional bonds of similar risk profile – reflecting the fact that green projects do not enjoy benefit from cheaper financing.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
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
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
- 26 May 2020
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2020Details
- Abstract
- Recent events have shown that stress in non-banks can affect other parts of the financial system, for example through forced asset sales and reduced short-term funding. This box examines the interconnections between banks and non-banks through direct exposures, overlapping portfolios and ownership links, and considers how these can increase the risk of systemic contagion.
- 26 May 2020
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2020Details
- Abstract
- Private equity (PE) funding, and buyout funds in particular, have grown rapidly as a form of corporate financing in recent years, as the search for yield intensified. The outstanding amount of PE managed by global funds amounted to close to USD 8 trillion in December 2019, of which buyout funds accounted for around a third. Buyout funds have grown faster than any other PE strategy over recent years, even as their managers have diversified their activities. Institutional investors’ demand for access to PE buyout funds has been reflected in increasing rates of oversubscription of buyout funds in the primary market (see Chart A, left panel). This box provides an overview of the main developments in the PE buyout market and assesses potential financial stability risks to both investors in PE funds and the overall financial system.
- 25 May 2020
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2020Details
- 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
- 30 March 2020
- WORKING PAPER SERIES - No. 2384Details
- Abstract
- Recent policy discussion includes the introduction of diversification requirements for sovereign bond portfolios of European banks. In this paper, we evaluate the possible effects of these constraints on risk and diversification in the sovereign bond portfolios of the major European banks. First, we capture the dependence structure of European countries' sovereign risks and identify the common factors driving European sovereign CDS spreads by means of an independent component analysis. We then analyse the risk and diversification in the sovereign bond portfolios of the largest European banks and discuss the role of “home bias”, i.e. the tendency of banks to concentrate their sovereign bond holdings in their domicile country. Finally, we evaluate the effect of diversification requirements on the tail risk of sovereign bond portfolios. Under our assumptions about how banks rebalance their portfolio to respond to the new requirements, demanding that banks modify their holdings to increase their portfolio diversification may be ineffective in reducing portfolio risk, including tail risk.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
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
- 3 March 2020
- FINANCIAL INTEGRATION AND STRUCTURE ARTICLEFinancial Integration and Structure in the Euro Area 2020Details
- Abstract
- This special feature analyses euro area investment preferences in the investment fund sector and discusses the implications for financial integration. We investigate the traditional perception that investors tend to hold a disproportionate share of domestic assets in their portfolio, a phenomenon generally known as “home bias”. We argue that measures of home bias that neglect fund holders’ countries of origin are biased, in particular when investments are concentrated in financial centres. By taking into account fund holders’ country of origin rather than assuming the fund’s domicile as investment origin, this study revisits and corrects measures of home bias in the euro area.
- 3 March 2020
- FINANCIAL INTEGRATION AND STRUCTURE ARTICLEFinancial Integration and Structure in the Euro Area 2020Details
- Abstract
- This special feature discusses how a common sovereign safe asset in the euro area could benefit financial stability by fostering financial integration and development, and by changing the structure of asset markets. The discussion focuses on the potential benefits of a well-designed common safe asset that has certain desirable characteristics, while it does not provide an assessment of specific design options. This special feature should be viewed as part of a broader discussion on how to complete the banking union, which also includes considerations regarding a European deposit insurance scheme and changing the regulatory treatment of sovereign exposures.
- 20 November 2019
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2019Details
- Abstract
- When investment funds face outflows, fund managers may have to liquidate parts of their portfolio, potentially changing its composition and riskiness as a result. If fund managers respond to outflows by selling securities proportionally to the initial asset allocation, i.e. selling a vertical slice of the portfolio, the liquidity and risk profile of the fund remains unchanged. But asset managers might have incentives to reduce the portfolio non-proportionally. For example, in trying to avoid incurring losses on illiquid assets, managers might choose to sell the most liquid securities first. And in the hope of increasing returns and attracting future inflows, they might choose to take on more risk in their portfolio. Other managers, worried about future outflows, might hoard liquid securities and de-risk their portfolios. However, large sales of illiquid securities may affect their market price at times of relatively low market liquidity, with possible spillovers to other financial institutions holding the same assets.
- 20 November 2019
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2019Details
- Abstract
- Scarce and inconsistent information on the climate-related risk embedded in assets makes the pricing of climate risk difficult for investors and authorities.Recent studies have found that environmental disclosures can affect the market valuation of non-financial businesses operating in sectors that are sensitive to the risks related to the transition to a low-carbon economy. But the impact is less clear for financial institutions. This box investigates climate-related disclosures of large euro area banks and insurers and their impact on stock market valuations.
- 29 July 2019
- WORKING PAPER SERIES - No. 2299Details
- Abstract
- Traditionally, insurers are seen as stabilisers of financial markets that act countercyclically by buying assets whose price falls. Recent studies challenge this view by providing empirical evidence of procyclicality. This paper sheds new light on the underlying reasons for these opposing views. Our model predicts procyclicality when prices fall due to increasing risk premia, and countercyclicality in response to rises in the risk-free rate. Using granular data on insurers’ government bond holdings, we validate these predictions empirically. Our findings contribute to the current policy discussion on macroprudential measures beyond banking.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 2 July 2019
- OCCASIONAL PAPER SERIES - No. 226Details
- Abstract
- This paper presents an approach to a macroprudential stress test for the euro area banking system, comprising the 91 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 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 importance of the starting level of bank capital, bank asset quality, and banks’ adjustments for the propagation of shocks to the financial sector and real economy.
- 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
- 29 May 2019
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2019Details
- Abstract
- In the current low interest rate environment, euro area insurers have been venturing into alternative asset classes such as alternative, infrastructure and private equity funds, loans and real estate holdings. This move helps insurers diversify their portfolios. It may also boost their investment returns and limit the duration mismatch in their balance sheets. More broadly, it contributes to the diversification of the financing sources of the real economy (see Chart 4.1). But the portfolio shift towards alternative investments also raises financial stability concerns, which is the focus of this box. In particular, the shift may increase insurers’ credit and liquidity risks and contribute to wider financial sector exuberance in some parts of the real economy as well as amplify market shocks in the event of (abrupt) price corrections.
- 29 May 2019
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2019Details
- Abstract
- The Eurosystem’s asset purchase programme (APP) has contributed to a portfolio rebalancing of securities holdings within the euro area. The ECB’s asset purchases, with their largest component initiated in March 2015, have compressed the yields of securities across a wide range of asset classes. In line with the portfolio rebalancing transmission channel of monetary policy, many investors responded to these lower yields by shifting their holdings towards riskier securities with higher expected returns. Non-banks, in particular, have moved increasingly into less-liquid and lower-rated bonds as well as longer-term securities in a search for yield. To the extent that a slowdown in growth or other market or policy developments lead to an increase in term or risk premia, investors may rebalance back towards safer assets.
- 29 May 2019
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2019Details
- Abstract
- This special feature discusses the channels through which climate change can affect financial stability and illustrates the exposure of euro area financial institutions to risks from climate change with the help of granular data. Notwithstanding currently limited data availability, the analysis shows that climate change-related risks have the potential to become systemic for the euro area, in particular if markets are not pricing the risks correctly. A deeper understanding of the relevance of climate change-related risks for the euro area financial system at large is therefore needed. Better data availability and comparability and the development of a forward-looking framework for risk assessments are important aspects of this work going forward.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G20 : Financial Economics→Financial Institutions and Services→General
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming