June 2019 issue contents
The Tradeoff between Monetary Policy and Bank Stability

Martien Lamersa,b, Frederik Mergaertsb, Elien Meulemanb, and Rudi Vander Vennetb


This paper investigates the transmission of monetary policy to systemic risk of euro-area and U.S. banks between 2008 and 2015. Using market measures of systemic risk and a VAR to obtain monetary policy shocks, we find that accommodative policy generally has a positive effect on bank stability in the euro area but a negative effect in the United States. Different transmission channels are at play: in the euro area the effect works mainly through a stealth recapitalization channel, while in the United States the effect is due to risk-shifting. Moreover, transmission of monetary policy differs across bank business models.

JEL Code: G21, G32, E52.

Full article (PDF, 42 pages, 1,010 kb)

 University of Groningen, Netherlands
b  Ghent University