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The ECB has deployed a broad array of unconventional monetary policy tools over the last few years. Those include negative interest rates, and several programmes of asset purchases and long-term liquidity provision, which authors bundle together under the general label of "quantitative easing". They study the impact of these measures on the "resilience" of banks in the euro area.
They characterise the bank level resilience in terms of the size of a shock to profitability, as measured by returns on assets, which a bank can withstand without wiping out its loss-absorbing buffers.
Overall their results suggest that, away from the zero-lower bound (ZLB), lower interest rates tend to weaken banks' loss absorbing buffers.
However they show that, as interest rates approach the ZLB or turn negative, further reductions actually enhance buffers, as a result of non-linearities around the ZLB. Quantitative easing would strengthen bank buffers overall, supporting the financial stability of the euro area.
These findings expose the underlying complexities when it comes to disentangle the effects of monetary policy tools in the euro area.
Authors also report that the benefits of improved resilience would have accrued mostly to banks headquartered in the core of the euro area. Banks based on the member states hardest hit by the 2011 sovereign debt crisis appeared to become less resilient as a result of these policies during our sample period.