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

Author

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  • Lucrezia Reichlin

    (London Business School and CEPR)

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 the banking sector, 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 by showing that 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 and kept them at the pre-crisis level. The paper also describes other aspects of banks’ balance sheet adjustment during the two crises.

Suggested Citation

  • Lucrezia Reichlin, 2013. "Monetary policy and banks in the euro area: the tale of two crises," Special Conference Papers 26, Bank of Greece.
  • Handle: RePEc:bog:spaper:26
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Economic recessions; Financial system; ECB policies; Bank behavior;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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; Other Depository Institutions; Micro Finance Institutions; Mortgages

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