Monetary Policy and Bank Stability: The Analytical Toolbox Reviewed

95 Pages Posted: 21 Feb 2020

See all articles by Ugo Albertazzi

Ugo Albertazzi

ECB -DG Monetary Policy

Francesca Barbiero

European Central Bank (ECB)

David Marques-Ibanez

European Central Bank (ECB)

Alexander A. Popov

European Central Bank (ECB)

Costanza Rodriguez d’Acri

European Central Bank (ECB)

Thomas Vlassopoulos

European Central Bank (ECB)

Date Written: February, 2020

Abstract

The response of major central banks to the global financial crisis has revived the debate around the interactions between monetary policy (MP) and bank stability. This technical paper sheds light, quantitatively, on the different mechanisms underlying the relationship between MP and bank stability. It does so by reviewing microeconometric studies from the academic literature as well as those conducted internally at the ECB. The paper proceeds chronologically, using the recent crisis as a touchstone. First, it provides a brief overview of the main theoretical channels linking bank stability and the transmission of MP. It then analyses the evidence from the pre-crisis period in the light of the structural trends leading up to the crisis. As the crisis erupted, unconventional monetary policy (UMP) measures were deployed, and the paper suggests that these were essential to buttress bank stability and halt a systemic crisis. At the same time, these measures involved trade-offs, and the adverse spillovers on banks’ intermediation capacity and risk-taking require close monitoring. The paper ends by offering a critical review of the methodologies employed and suggestions for the areas where analytical efforts should be focussed in the future.

Keywords: bank stability, credit, monetary policy

JEL Classification: E4, E43, E5, E52, G20, G21

Suggested Citation

Albertazzi, Ugo and Barbiero, Francesca and Marques-Ibanez, David and Popov, Alexander A. and d’Acri, Costanza Rodriguez and Vlassopoulos, Thomas, Monetary Policy and Bank Stability: The Analytical Toolbox Reviewed (February, 2020). ECB Working Paper No. 2377. Available at SSRN: https://ssrn.com/abstract=3541733

Ugo Albertazzi (Contact Author)

ECB -DG Monetary Policy ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Francesca Barbiero

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

David Marques-Ibanez

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 6913 44 6460 (Phone)
49 6913 44 6460 (Fax)

Alexander A. Popov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Costanza Rodriguez D’Acri

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Thomas Vlassopoulos

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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