Financial markets

11/08/2018

Euro area interbank fragmentation: bad sovereign or bad balance sheets?

By Silvia Gabrieli and Claire Labonne

Between 2011 and the announcement of Outright Monetary Transactions (OMTs), high rates of non-performing exposures to peripheral countries hindered banks’ access to the interbank market. Sizeable holdings of peripheral countries’ sovereign bonds also increased the price paid for interbank funding. The introduction of OMTs in 2012 and Targeted Longer-Term Refinancing Operations (TLTROs) in 2014 successfully curbed these channels of fragmentation risk.

Figure 1: Average interest rates in the euro area interbank market for GIIPS
Figure 1: Average interest rates in the euro area interbank market for GIIPS Source: Gabrieli and Labonne (2018)
Updated on 11/09/2018 09:27.
Comments (0)
09/11/2018

The economic impact of financial events: an all-or-nothing phenomenon

By Stéphane Lhuissier

By Stéphane Lhuissier
The 2008 financial crisis and the sovereign debt crisis in the euro area led to major recessions. By contrast, the macroeconomic impact of the bursting of the technology bubble in 2000 was mild. The reason behind these all-or-nothing effects is amplification: a fragile financial system makes economic agents more sensitive to changes in financial conditions.

Differences in the impact of an adverse financial shock on euro area industrial production between financial states
Chart 1 – Differences in the impact of an adverse financial shock on euro area industrial production between financial states Note: Impulse responses of industrial production to the financial shock in healthy and fragile financial states. The size of the financial shock is the same in both cases. The dotted line shows the median and solid lines are 68% probability intervals.
Updated on 09/11/2018 09:28.
Comments (0)
07/04/2018

The four seasons of the financial cycle and the countercyclical capital buffer

By Cyril Couaillier and Julien Idier

Financial cycles can be broken down into four phases in which the intensity of financial risks changes. The crisis that follows the downturn is all the more pronounced as risks have accumulated during the upturn. Macroprudential policy aims to limit the impact of financial crises on the real economy: the decision to activate the countercyclical capital buffer in France meets this imperative.

The four seasons of the financial cycle
Chart 1: The four seasons of the financial cycle
Updated on 07/05/2018 17:22.
Comments (0)
07/05/2017

Are markets signalling that the risk of deflation is over?

By Hervé Le Bihan and Imène Rahmouni Rousseau

Financial markets confirm that, since autumn 2016, deflationary risks in the euro area have dissipated. Market indicators – which are admittedly susceptible to a number of biases – nevertheless continue to reflect medium-term inflation expectations which are below the Eurosystem’s target (inflation rates of below, but close to, 2% over the medium run).

Updated on 06/13/2018 10:59.
06/16/2017

Is bond financing a factor of recovery?

Thomas Grjebine, Urszula Szczerbowicz  and Fabien Tripier

The Capital Markets Union project (CMU) recommends diversifying the financing of companies, in particular through debt securities in addition to bank loans. Is the choice of debt instrument important in economic recoveries? In fact, companies replace bank financing by bond financing in a recovery phase. In addition, recoveries are more robust when the share of bond financing is high.

Updated on 06/13/2018 10:55.