Financial institutions

From losses to buffer - calibrating the positive neutral CCyB rate in the euro area

06/11/2025 European Central Bank Central banks

We study the impact of cyclical systemic risks on banks’ profitability in the euro area within a panel quantile regression model, with the ultimate goal to inform the calibration of the Countercyclical Capital buffer (CCyB). Compared to previous studies, we augment our model to control for unobserved bank-specific characteristics and year-fixed effects and find a lower degree of heterogeneity in the estimated effects across the conditional distribution of bank returns on assets.

Organized crime and banks: assessing the effects of anti-mafia police actions on lending

06/11/2025 European Central Bank Central banks

This study examines how dismantling Mafia-connected firms affects banks’ lending practices. Using a unique dataset of 667 such firms and loan-level data from the European Central Bank, our analysis shows that anti-Mafia operations precede an increase in bank loans to businesses that operate in areas that are directly affected by these actions. Specifically, overall loan volumes increase by approximately 0.8 percent, which translates to an increase of €1.38 billion in bank loans to these firms.

Recalibration of the Indexed Long-Term Repo Operation – Market Notice 11 June 2025

06/11/2025 Bank of England Central banks

This Market Notice confirms the recalibrated parameters of the Indexed Long-Term Repo (ILTR) operation. In line with the Bank’s transition to a repo-led, demand driven operational framework for providing reserves, which ILTR operations are central to, the Bank is announcing an increase in the total amount of reserves available in each ILTR auction, an increase in the quantity of reserves available at fixed minimum spreads, and a gentler upward sloping supply curve than previously to ensure that clearing spreads only rise gradually.

FEDS Paper: Black Swans and Financial Stability: A Framework for Building Resilience

06/06/2025 Federal Reserve Central banks

Daniel Barth and Stacey SchreftThis article refines the concept of black swans, typically described as highly unlikely and catastrophic events, by clearly distinguishing between knowable and unknowable events. By emphasizing that black swans are “unknown unknowns,” the article highlights that the realization of new black swans cannot be prevented and motivates a need for policies that build the financial system's resilience to unforeseeable crises.

FEDS Paper: Changing Jobs to Fight Inflation: Labor Market Reactions to Inflationary Shocks

06/04/2025 Federal Reserve Central banks

Gorkem Bostanci, Omer Koru, and Sergio VillalvazoWe argue that inflationary shocks affect allocative efficiency by changing the rate and the characteristics of workers’ job-to-job transitions. First, using monetary policy shocks and survey data on search effort, we empirically show that a one percentage point rise in inflation increases job-to-job transitions by up to 4.5%, and workers with higher inflation expectations are more likely to search and do so more effectively.

FEDS Paper: How Stable are Inflation Expectations in the Euro Area? Evidence from the Euro-Area Financial Markets

06/02/2025 Federal Reserve Central banks

Olesya V. Grishchenko, Franck Moraux, and Olga PakulyakWe analyze evolution of inflation expectations in the euro area (EA) using a novel measure of inflation expectations implied by the French nominal and inflation-indexed bonds. Overall, we find that EA inflation expectations have been relatively well anchored in the 2004–2019 sample but have been somewhat sensitive to the incoming macroeconomic news and monetary policy shocks in the sample that includes the COVID-19 pandemic.

FEDS Paper: Market Liquidity in Treasury Futures Market During March 2020

05/30/2025 Federal Reserve Central banks

Eleni Gousgounis, Scott Mixon, Tugkan Tuzun, and Clara VegaWe study the behavior of liquidity providers and liquidity consumers in the 10-year U.S. Treasury futures market during the height of the COVID-19 shock in March 2020, a period of market turmoil when demand for liquidity was high. In March 2020, PTFs reduced their volume of liquidity providing trades as a share of total trading volume.

FEDS Paper: A Look Back at "Look Through"

05/29/2025 Federal Reserve Central banks

Edward NelsonThis paper examines the place that a "look-through" approach to price shocks has acquired in inflation-targeting frameworks. The "look-through" approach reflects the fact that, in the event of a shock that is likely (on impact) to put a sizable share of consumer prices under upward pressure, one option available to the central bank is to accommodate the initial price rise. In doing so, it can also attempt to ensure that future inflation rates, and inflation expectations, are insulated from the shock.

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