Financial institutions

Pricing or panicking? Commercial real estate markets and climate change

This paper provides the first study of climate risk pricing in euro area commercial real estate markets. We pay particular attention to changes in risk pricing over time, as a sudden market shift may significantly amplify the financial stability and macroeconomic implications of these risks. We find evidence of investors applying a penalty to buildings exposed to physical risk and that this penalty has increased significantly over the 2007-2023 period we study, particularly for properties exposed to risks associated with climate change.

Just another crypto boom? Mind the blind spots

The market capitalisation of crypto-assets has surged recently, fuelled by positive and broadening investor interest, including from traditional finance. Several key financial stability risks associated with crypto-assets have been identified in past editions of this publication and by the Financial Stability Board. They include, among others, interconnectedness with traditional finance

FEDS Paper: Collateral Reuse and Financial Stability

Jin-Wook B. Chang and Grace ChuanThe isolated effects of collateral reuse on financial stability are ambiguous and understudied. While greater collateral reuse can guarantee more payments with fewer assets, it can also increase the exposure to potential drops in collateral price. To analyze these tradeoffs, we develop a financial network model with endogenous asset pricing, multiple equilibria, and equilibrium selection.

The poor, the rich, and the credit channel of monetary policy

Monetary policy can have contrasting effects on economic inequality via distinct channels. We examine the effect working via the credit channel, whereby monetary policy induces heterogeneous access to credit for business owners based on their wealth. Using unique data on business loan applications from small firms, we find that monetary expansions increase the bank’s likelihood to approve loan applications, particularly so for low-wealth entrepreneurs, translating to higher future income and wealth.

The impact of monetary policy and macroprudential policy on corporate lending rates in the Euro area

We examine the differential impact of monetary policy and macroprudential policy on bank lending rates in the euro area, using granular corporate loan-level data for the period 2019-2023. We find three results: First, consistent with the predictions of a stylized theoretical model of bank lending rates, monetary policy exerts an order of magnitude larger impact on lending rates than macroprudential policy. Second, the effectiveness of monetary policy transmission weakens when interest rates are close to or below zero.

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