European Central Bank

A theory of bank liquidity requirements

07/09/2026 European Central Bank Central banks

We develop a general equilibrium theory of financial intermediation and its implications for liquidity regulation. The model is built around an agency problem arising from leveraged intermediation: banks finance loan origination with deposits and face moral hazard in risk management, while holding cash mitigates these incentives at the cost of foregone investment returns. Liquidity demand therefore emerges endogenously from incentive considerations rather than from exposure to exogenous funding shocks.

How do economies with open labour markets work? The role of temporary migration in the European Union

07/08/2026 European Central Bank Central banks

This paper studies how temporary migration affects macroeconomic fluctuations and the conduct of stabilisation policies using a two-country DSGE model with search-and-matching frictions and endogenous cross-border labour mobility. The analysis shows that migration responds endogenously to both labour market conditions and exchange rate movements, making it an important channel of cross-country adjustment. Labour mobility alters the transmission of shocks in three main ways.

Measuring geoeconomic tension: a large-language-model approach for the euro area

07/07/2026 European Central Bank Central banks

We construct an index of geopolitical and geoeconomic tension for the euro area using Large-Language Models (LLMs) that prompt a large dataset of European, local-language newspaper articles. The resulting LLM Geoeconomic and Geopolitical Tension (LGPT) index and its subindices seek to provide an accurate narrative of tensions and their sources over the past quarter century. The multilingual LLM approach allows for a separation between geopolitical and geoeconomic tensions and for granularity in the identification of the source of such tensions including trade, energy and finance.

Barriers to a European Banking Union

07/07/2026 European Central Bank Central banks

We quantify barriers to cross-border bank lending to firms within the euro area and their consequences for credit allocation and output. Using loan-level data from the European credit registry (AnaCredit) and group structures (RIAD),we estimate barriers to relationship formation, loan pricing, and banks’ branching decisions at the country-pair level. We find that barriers to cross-border relationships between banks and firms and cross-border bank entry are large while wedges on interest rates and loan quantities are comparatively small.

Monetary policy transmission and non-bank financial intermediation

07/06/2026 European Central Bank Central banks

The growing importance of non‑bank financial intermediaries (NBFIs) also has important implications for the transmission of monetary policy in the euro area. It alters the composition of credit supply and strengthens the role of market‑based finance for the corporate sector. In the aggregate, NBFIs tend to amplify the transmission of monetary policy within the financial sector. In particular, intermediaries with uninsured short‑term funding amplify monetary transmission to credit.

Monetary policy transmission via banks to firms

07/06/2026 European Central Bank Central banks

This Occasional Paper reviews evidence from the ChaMP Research Network on the transmission of monetary policy to firms in the euro area. Overall, transmission to firms remains effective, including during the 2022-23 tightening cycle. However, new results show that this transmission is neither uniform nor mechanical. The pass-through from policy rates and other instruments to corporate financing conditions is shaped by multiple layers of heterogeneity that may, in some cases, have aggregate implications.

Monetary policy transmission through the financial system to households

07/06/2026 European Central Bank Central banks

This Occasional Paper reviews evidence from the ChaMP Research Network on the transmission of monetary policy to households in the euro area – an area of monetary policy that has attracted less attention among researchers. It highlights thecentral role of banks and non-bank intermediaries in shaping how policy affects borrowing, saving and consumption.

The propagation of shocks across the production network and implications for monetary policy

07/06/2026 European Central Bank Central banks

The repeated occurrence of supply-chain disruptions since the COVID-19 pandemic reveals the need to complement traditional macroeconomic frameworks with approaches that better capture the complexity of modern economic productionstructures. This paper synthesises the findings of the ChaMP Research Network, highlighting how production network models and heterogeneity across firms, sectors and countries enrich our understanding of monetary policy transmission.

Tracking euro area labour market developments through restructuring announcements

06/25/2026 European Central Bank Central banks

This box examines whether large-scale restructuring announcements recorded in the European Restructuring Monitor (ERM) compiled by Eurofound contain economically meaningful signals of euro area labour market dynamics. We construct a net job changes indicator, demonstrating that its lagged values contain information on episodes of below-average employment performance ahead of official data releases.

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