Euro Area Unconventional Monetary Policy and Bank Resilience

51 Pages Posted: 7 Jan 2019

See all articles by Fernando H. Avalos

Fernando H. Avalos

Bank for International Settlements (BIS)

Emmanuel C. Mamatzakis

University of Sussex - School of Business, Management and Economics

Date Written: November 2, 2018

Abstract

This paper examines whether euro area unconventional monetary policies have affected the loss-absorbing buffers (that is the resilience) of the banking industry. We employ various measures to capture the effect of the broad array of programmes used by the ECB to implement balance sheet policies, while we control for the effect of conventional and negative (or very low) interest rate policy. The results suggest that, above and away from the zero-lower bound, looser interest rate policy tends to weaken our measure of euro area banks' loss-absorbing buffers. On the contrary, further lowering interest rates near and below the zero lower bound seems to strengthen (or weaken less) such buffers, which points towards non-linearities arising in the vicinity of the lower bound. Moreover, balance sheet easing policies enhance bank level resilience overall. However, unconventional monetary policies seem to have increased the fragility of banks in the member states hardest hit by the 2011 sovereign debt crisis. In fact, the evidence presented in this paper suggest that the resilience gains of unconventional monetary policies have accrued mostly to banks headquartered in the so-called core euro area countries (Austria, Belgium, Finland, France, Germany, Luxembourg and Netherlands). Finally, unconventional monetary policies seem to have enhanced more the resilience of banks that were relatively stronger, i.e. that were in the higher deciles of the distribution of loss-absorbing buffers.

Keywords: Unconventional monetary policy, ECB, asset purchases, loss-absorbing buffer

JEL Classification: G21, E52, E43

Suggested Citation

Avalos, Fernando Hugo and Mamatzakis, Emmanuel C., Euro Area Unconventional Monetary Policy and Bank Resilience (November 2, 2018). BIS Working Paper No. 754, Available at SSRN: https://ssrn.com/abstract=3302304

Fernando Hugo Avalos (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
+41 61 280 8650 (Phone)
+41 61 280 9100 (Fax)

HOME PAGE: http://www.bis.org/author/fernando_avalos.htm

Emmanuel C. Mamatzakis

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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