Central banks

The number of financial services roles required to face enhanced checks from regulators will fall significantly under proposals that will support growth.

General-purpose technologies create large opportunities but make their distribution across firms difficult to assess in real time. We use banks as interpreters of the rise of generative AI by studying lender-specific probability-of-default (PD) estimates for private firms in four large euro-area economies. As public attention to AI rises after ChatGPT, banks lower assessed default risk for borrowers in highly AI-exposed industries by about 5%. The reassessment is weaker for labor-intensive firms and stronger among lenders with pre-existing industry expertise.

This paper quantifies the regulatory cost of short-term money market transactions and analyses how post-global financial crisis prudential reforms shape the structure of euro area money markets and the redistribution of central bank reserves. As the stock of reserves declines with the normalisation of the European Central Bank’s balance sheet, trading in money markets is becoming increasingly important to banks’ liquidity management. As the related money market volumes rise, regulatory constraints may become a more visible determinant of trading activity and short-term rate formation.

Published for the Treasury Select Committee