Central banks

The role of judgement in supervisory scores and additional capital requirements assigned to banks

05/13/2026 European Central Bank Central banks

We empirically analyse the role of judgement in assigning overall scores by the euro area supervisors as part of the yearly Supervisory Review and Evaluation Process (SREP), which evaluates banks’ risks and sets supervisory actions. We also analyse its role in shaping the drivers of the Pillar 2 capital requirement (P2R) that banks must fulfil. We find that supervisors actively adjust the weight of the components of the overall score to reflect qualitative information, thereby smoothing fluctuations in the final assessment.

Wildfire cashflow shocks

05/12/2026 European Central Bank Central banks

This paper studies the impact on cashflows and financial decisions of firms affected by wildfires, focusing on the wildfires that occurred in Portugal in 2017. Using establishment-level data from the hotel industry combined with geospatial information on wildfire proximity and land use, we employ a difference-in-differences approach to study both directly and indirectly affected firms.

Supply chain uncertainty, energy prices, and inflation

05/12/2026 European Central Bank Central banks

Using U.S. and Euro area data, we document that (i) the pass-through of energy prices to inflation is state-dependent - stronger when supply chain uncertainty is elevated – and (ii) in such states, energy prices become more informative about logistical conditions. We develop a model in which firms combine energy and a specialized input transported through a capacity-constrained transportation network. When congestion binds, energy remains available in local markets at a premium, whereas the specialized input is subject to delivery delays.

Wildfire cashflow shocks

05/12/2026 European Central Bank Central banks

This paper studies the impact on cashflows and financial decisions of firms affected by wildfires, focusing on the wildfires that occurred in Portugal in 2017. Using establishment-level data from the hotel industry combined with geospatial information on wildfire proximity and land use, we employ a difference-in-differences approach to study both directly and indirectly affected firms.

Supply chain uncertainty, energy prices, and inflation

05/12/2026 European Central Bank Central banks

Using U.S. and Euro area data, we document that (i) the pass-through of energy prices to inflation is state-dependent - stronger when supply chain uncertainty is elevated – and (ii) in such states, energy prices become more informative about logistical conditions. We develop a model in which firms combine energy and a specialized input transported through a capacity-constrained transportation network. When congestion binds, energy remains available in local markets at a premium, whereas the specialized input is subject to delivery delays.

The impact of China’s industrial rise on the euro area

05/12/2026 European Central Bank Central banks

China’s industrial rise is a key external force influencing euro area trade, production and prices by reducing costs for euro area companies, via intermediate inputs, and increasing competitive pressures in European and global markets. Econometric analysis shows that the increase in the exposure of the euro area to intermediate goods imports from China has been positively associated with industrial production growth, whereas the increase in imports of final goods from China has tended to weigh on production.

ECB exchange rate communication

05/11/2026 European Central Bank Central banks

We revisit the debate on the effectiveness of central bank communication on exchange rates, contrasting a skeptical view, which holds that communication neither moves exchange rates nor influences them in the desired direction, with an optimistic view that it does.

ECB exchange rate communication

05/11/2026 European Central Bank Central banks

We revisit the debate on the effectiveness of central bank communication on exchange rates, contrasting a skeptical view, which holds that communication neither moves exchange rates nor influences them in the desired direction, with an optimistic view that it does.

Do lenders price diesel risk? Evidence from Dieselgate and low-emission zones in captive vs. independent banks

05/11/2026 European Central Bank Central banks

Transitioning to a sustainable economy and reducing air pollution hinge on appropriate economic incentives and financing conditions. The auto loan market offers a prime setting, as lenders’ credit terms can either discourage or incentivize the purchase of high-pollution vehicles. Using loan-level data, we examine how captive and independent banks adjust lending conditions in response to information and regulatory shocks affecting diesel vehicles.

Do lenders price diesel risk? Evidence from Dieselgate and low-emission zones in captive vs. independent banks

05/11/2026 European Central Bank Central banks

Transitioning to a sustainable economy and reducing air pollution hinge on appropriate economic incentives and financing conditions. The auto loan market offers a prime setting, as lenders’ credit terms can either discourage or incentivize the purchase of high-pollution vehicles. Using loan-level data, we examine how captive and independent banks adjust lending conditions in response to information and regulatory shocks affecting diesel vehicles.

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