Monetary policy and banks in the Euro area: The tale of two crises

Reichlin, L (2014) Monetary policy and banks in the Euro area: The tale of two crises. Journal of Macroeconomics, 39 (Part B). pp. 387-400. ISSN 0164-0704

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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.

Item Type: Article
Additional Information: © 2014 Elsevier B.V.
Subject Areas: Economics
DOI: 10.1016/j.jmacro.2013.09.012
Date Deposited: 02 Mar 2016 18:51
Last Modified: 22 Mar 2016 19:46
URI: http://lbsresearch.london.edu/id/eprint/29

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