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Barbara Meller
- 18 April 2024
- OCCASIONAL PAPER SERIES - No. 346Details
- Abstract
- A digital euro would provide the general public with an additional means of payment in the form of risk-free central bank money in digital form that is universally accepted for digital payments across the euro area. A digital euro would offer a wide range of financial stability benefits, including safeguarding the role of public money and strengthening the strategic autonomy and monetary sovereignty of the euro area in the digital era. It would be designed to have no material impact on financial stability or the transmission of monetary policy. This paper shows the usefulness of digital euro safeguards, such as holding limits, that would limit the impact of the introduction of a digital euro on banks’ liquidity and on their reliance on central bank funding. To this end, it assesses how banks might respond to the introduction of a digital euro while seeking to maximise profitability and manage their risks for a range of holding limit scenarios. The results of the simulated impact on key liquidity metrics show that, with safeguards in place and on aggregate, the liquidity metrics of euro area banks would decline but remain well above regulatory minimums. In addition, the central bank funding ratios of euro area banks would not increase materially on aggregate and would remain contained overall.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 16 August 2023
- OCCASIONAL PAPER SERIES - No. 326Details
- Abstract
- How do central bank digital currencies (CBDC) impact the balance sheets of banks and central banks? To tackle this question empirically, we built a constraint optimisation model that allows for individual banks to choose how to respond to outflows of deposits, based on cost considerations and subject to the availability of reserves and collateral, within the individual banks and system wide, and for a given level of liquidity risk tolerance. We simulate the impact of a fictitious digital euro introduction in the third quarter of 2021, using data from over 2,000 euro area banks. That impact depends on i) the number of deposits withdrawn and the speed at which this occurs, ii) the liquidity available within the banking system at the time of the digital euro introduction, iii) the liquidity risk preferences of the markets and supervisors, iv) the bank’s business model, and v) the functioning of the interbank market. We find that a €3,000 digital euro holding limit per person, as suggested by Bindseil (2020) and Bindseil and Panetta (2020), would have been successful in containing the impact on bank liquidity risks and funding structures and on the Eurosystem balance sheet, even in extremely pessimistic scenarios.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 12 May 2022
- OCCASIONAL PAPER SERIES - No. 293Details
- Abstract
- In July 2021 the Eurosystem decided to launch the investigation phase of the digital euro project, which aims to provide euro area citizens with access to central bank money in an increasingly digitalised world. While a digital euro could offer a wide range of benefits, it could prompt changes in the demand for bank deposits and services from private financial entities (ECB, 2020a), with knock-on consequences for bank lending and resilience. By inducing bank disintermediation, a central bank digital currency, or CBDC, could in principle alter the transmission of monetary policy and impact financial stability. To prevent this risk, options to moderate CBDC take-up are being discussed widely.In view of the significant degree of uncertainty surrounding the design of a potential digital euro, its demand and the prevailing environment in which it would be introduced, this paper explores a set of analytical exercises that can offer insights into the consequences it could have for bank intermediation in the euro area.Based on assumptions about the degree of substitution between different forms of money in normal times, several take-up scenarios are calculated to illustrate how the potential demand for a digital euro might shape up. The paper then analyses the mechanisms through which commercial banks and the central bank could react to the introduction of a digital euro. Overall, effects on bank intermediation are found to vary across credit institutions in normal times and to be potentially larger in stressed times. Further, a potential digital euro’s capacity to alter system-wide bank run dynamics appears to depend on a few crucial factors, such as CBDC remuneration and usage limits.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 25 August 2021
- OCCASIONAL PAPER SERIES - No. 260Details
- Abstract
- The Basel Committee on Banking Supervision (BCBS) framework used to identify global systemically important banks (G-SIBs) is based on banks’ balance sheet information, leaving information derived from market data untapped. Among the most widely used market-based systemic risk measures, Adrian and Brunnermeier’s (2016) Delta-Conditional Value at Risk (ΔCoVaR) best captures the system-wide loss-given-default (sLGD) and conditional impact concepts underlying the BCBS GSIB methodology. In this paper we investigate, using a global sample of the largest banks, whether a score based on ΔCoVaR could be useful for ranking G-SIBs or for calibrating an alternative G-SIB indicator weighting scheme. In our first analysis we find that the ΔCoVaR score is positively correlated with all five of the systemic importance categories of the BCBS framework. However, considerable information/noise with regard to the ΔCoVaR score remains unexplained. Before more is known about this residual, a score based on ΔCoVaR is difficult to interpret and is inappropriate for identifying G-SIBs in a policy context. Besides, we find that a ranking based on ΔCoVaR is subject to substantial variability over time and across empirical specifications. In our second analysis we use ΔCoVaR to place the current static weighting scheme for G-SIB indicators on an empirical footing. To do this we regress ΔCoVaR on factors derived from the G-SIB indicators. This approach allows us to focus on the part of ΔCoVaR which can be explained by balance sheet information which alleviates the identified issues of interpretability and variability. The derived weights are highest for the cross-jurisdictional activity (43%) and size (27%) categories. We conclude that ΔCoVaR is not suitable for use as an alternative G-SIB score but could be useful for policymakers to pursue an empirically grounded weighting scheme for the existing G-SIB indicators.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 4 October 2018
- OCCASIONAL PAPER SERIES - No. 214Details
- Abstract
- This study provides a conceptual and monitoring framework for systemic liquidity, as well as a legal assessment of the possible use of macroprudential liquidity tools in the European Union. It complements previous work on liquidity and focuses on the development of liquidity risk at the system-wide level. A dashboard with a total of 20 indicators is developed for the financial system, including banks and non-banks, to assess the build-up of systemic liquidity risk over time. In addition to examining liquidity risks, this study sheds light on the legal basis for additional macroprudential liquidity tools under existing regulation (Article 458 of the Capital Requirements Regulation (CRR), Articles 105 and 103 of the Capital Requirements Directive (CRD IV) and national law), which is a key condition for the implementation of macroprudential liquidity tools.
- 30 April 2018
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 5Details
- Abstract
- This article presents stylised facts from the euro area network of large exposures and derives model-based interconnectedness measures of SSM significant institutions. The article has three main findings. First, the interbank network is relatively sparse and suggests a core-periphery network structure. Second, the more complex network measures on average correlate highly with the more simple size-based interconnectedness indicators, constructed following the EBA guidelines on the calibration of O-SII buffers. Third, there is nevertheless value for policymakers to take into account network-based measures in addition to the size-based interconnectedness indicators, as for some individual banks those measures can deviate considerably.
- JEL Code
- C63 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computational Techniques, Simulation Modeling
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation