Arbeitspapier
The (unobservable) value of central bank's refinancing operations
We quantify the impact that central bank refinancing o perations a nd f unding f acilities had at reducing the banking sector's intrinsic fragility in the euro area in 2014-2019. We do so by constructing, estimating and calibrating a micro-structural model of imperfect competition in the banking sector that allows for runs in the form of multiple equilibria, in the spirit of Diamond & Dybvig (1983), banks' default and contagion, and central bank funding. Our framework incorporates demand and supply for insured and uninsured deposits, and for loans to firms and households, as well as borrowers' default. The estimation and the calibration are based on confidential granular data for the euro area banking sector, including information on the amount of deposits covered by the deposit guarantee scheme and the borrowing from the European Central Bank (ECB). We document that the quantitative relevance of non-fundamental risk is potentially large in the euro area banking sector, as witnessed by the presence of alternative equilibria with run-type features, but also that central bank interventions exerted a crucial role in containing fundamental as well as non-fundamental risk. Our counterfactuals show that 1 percentage point reduction (increase) in the ECB lending rate of its refinancing operations reduces (increases) the median of banks' default risk across equilibria by around 50%, with substantial heterogeneity of this pass-through across time, banks and countries.
- ISBN
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978-92-899-4397-0
- Language
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Englisch
- Bibliographic citation
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Series: ECB Working Paper ; No. 2480
- Classification
-
Wirtschaft
Financial Markets and the Macroeconomy
Monetary Policy
Central Banks and Their Policies
Financial Crises
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Oligopoly and Other Imperfect Markets
- Subject
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Central bank policies
Bank runs
Multiple equilibria
Imperfect competition
Structural estimation
- Event
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Geistige Schöpfung
- (who)
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Albertazzi, Ugo
Burlon, Lorenzo
Jankauskas, Tomas
Pavanini, Nicola
- Event
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Veröffentlichung
- (who)
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European Central Bank (ECB)
- (where)
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Frankfurt a. M.
- (when)
-
2020
- DOI
-
doi:10.2866/835167
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Albertazzi, Ugo
- Burlon, Lorenzo
- Jankauskas, Tomas
- Pavanini, Nicola
- European Central Bank (ECB)
Time of origin
- 2020
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The value of publishing official central bank forecasts
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Why do central banks make public announcements of open market operations?
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Which bank is the central bank? An application of Markov theory to the Canadian large value transfer system
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