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Non-bank financial intermediation in the euro area: implications for monetary policy transmission and key vulnerabilities

Author

Listed:
  • Cappiello, Lorenzo
  • Holm-Hadulla, Fédéric
  • Maddaloni, Angela
  • Mayordomo, Sergio
  • Unger, Robert
  • Arts, Laura
  • Meme, Nicolas
  • Asimakopoulos, Ioannis
  • Migiakis, Petros
  • Behrens, Caterina
  • Moura, Alban
  • Corradin, Stefano
  • Nicoletti, Giulio
  • Ferrando, Annalisa
  • Niemelä, Juha
  • Giuzio, Margherita
  • Petersen, Annelie
  • Golden, Brian
  • Pierrard, Olivier
  • Guazzarotti, Giovanni
  • Ratnovski, Lev
  • Gulan, Adam
  • Schober-Rhomberg, Alexandra
  • Hertkorn, Andreas
  • Sigmund, Michael
  • Kaufmann, Christoph
  • Soares, Carla
  • Avakian, Lucía Kazarian
  • Stupariu, Patricia
  • Koskinen, Kimmo
  • Taboga, Marco
  • Sédillot, Franck
  • Tavares, Luis Miguel
  • Matilainen, Jani
  • Boom, Emme Van den
  • Mazelis, Falk
  • Zaghini, Andrea
  • McCarthy, Barra

Abstract

The financing structure of the euro area economy has evolved since the global financial crisis with non-bank financial intermediation taking a more prominent role. This shift affects the transmission of monetary policy. Compared with banks, non-bank financial intermediaries are more responsive to monetary policy measures that influence longer-term interest rates, such as asset purchases. The increasing role of debt securities in the financing structure of firms also leads to a stronger transmission of long-rate shocks. At the same time, short-term policy rates remain an effective tool to steer economic outcomes in the euro area, which is still highly reliant on bank loans. Amid a low interest rate environment, the growth of market-based finance has been accompanied by increased credit, liquidity and duration risk in the non-bank sector. Interconnections in the financial system can amplify contagion and impair the smooth transmission of monetary policy in periods of market distress. The growing importance of non-bank financial intermediaries has implications for the functioning of financial market segments relevant for monetary policy transmission, in particular the money markets and the bond markets. JEL Classification: E4, E5, G2, G38

Suggested Citation

  • Cappiello, Lorenzo & Holm-Hadulla, Fédéric & Maddaloni, Angela & Mayordomo, Sergio & Unger, Robert & Arts, Laura & Meme, Nicolas & Asimakopoulos, Ioannis & Migiakis, Petros & Behrens, Caterina & Moura, 2021. "Non-bank financial intermediation in the euro area: implications for monetary policy transmission and key vulnerabilities," Occasional Paper Series 270, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2021270
    Note: 234084
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    Cited by:

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    2. Joost Bats & Giovanna Bua & Daniel Kapp, 2023. "Physical and transition risk premiums in euro area corporate bond markets," Working Papers 761, DNB.
    3. Pana Alves & Sergio Mayordomo & Manuel Ruiz-García, 2022. "Corporate financing in fixed-income markets: the contribution of monetary policy to lowering the size barrier," Occasional Papers 2209, Banco de España.
    4. Holm-Hadulla, Fédéric & Mazelis, Falk & Rast, Sebastian, 2023. "Bank and non-bank balance sheet responses to monetary policy shocks," Economics Letters, Elsevier, vol. 222(C).
    5. Gabriele Beccari & Francesco Marchionne & Beniamino Pisicoli, 2022. "Alternative financing and investment in intangibles: evidence from Italian firms," Mo.Fi.R. Working Papers 174, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    6. Feinstein, Zachary & Hałaj, Grzegorz, 2023. "Interbank asset-liability networks with fire sale management," Working Paper Series 2806, European Central Bank.

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    Keywords

    Asset purchases; Financial markets stress; Low interest rates; Monetary policy transmission; Non-bank intermediation; Risk-taking;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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