The ECB and the banks: the tale of two crises

Lucrezia Reichlin

No 9647, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper is a narrative on monetary policy and the banking sector during the two recent euro area recessions. It shows that while in the two episodes of recession and financial stress the ECB acted aggressively providing liquidity to banks, the second recession, unlike the first, has been characterized by an abnormal decline of loans with respect to both real economic activity and the monetary aggregates. It conjectures that this fact is explained by the postponement of the adjustment in the banking sector. It shows that euro area banks, over the 2008-2012 period, did not change neither the capital to asset ratio nor the size of their balance sheet relative to GDP keeping them at the pre-crisis level. The paper also describes other aspects of banks? balance sheet adjustment during the two crises pointing to a progressive dismantling of financial integration involving the inter-bank market since the first crisis and the market for government bonds since the second.

Keywords: Banks; Monetary policy; Recession (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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