European Central Bank

Residential real estate (RRE) lending standards: determinants and financial stability implications

06/25/2025 European Central Bank Central banks

This article looks into residential real estate (RRE) lending standards, focusing on their key determinants and assessing the implications of loose lending standards for financial stability and the real economy. Two key insights emerge. First, lending standards tend to be procyclical – i.e., they become looser during economic upturns and tighter during downturns. Second, loose lending standards amplify the effects of negative housing market shocks on the real economy and heighten financial stability risks via an increase in the probability of default of households.

A decade of borrower-based measures in the banking union

06/25/2025 European Central Bank Central banks

Borrower-based measures (BBMs) are critical tools in the banking union’s macroprudential policy frameworks. They are designed to promote sustainable lending practices and strengthen the resilience of borrowers, lenders and the broader economy. Over the past decade, the adoption of BBMs has significantly increased across countries in the banking union, likely reflecting their effectiveness.

Climate change, firms and aggregate productivity

06/24/2025 European Central Bank Central banks

Our paper uses a general equilibrium framework to examine the effects of temperature on firm-level demand, productivity and input allocative efficiency. Using data from Italian firms and detailed climate data, it uncovers a sizeable negative effect of extreme temperatures on firm-level productivity. Based on these estimates, the model generates aggregate productivity losses from local temperature fluctuations that are higher than previously thought, ranging from 0.60% to 6.82% depending on the scenario and the extent of adaptation.

Where do we stand with inflationary pressures arising from price resetting?

06/20/2025 European Central Bank Central banks

Euro area services inflation has been persistent owing to a combination of factors, including a delayed response of some services prices to past shocks. This, in part, reflects staggered price setting, as the price changes of a large share of the services basket take place in just one or two months of the year. This box identifies the services items with such pricing patterns and shows that the inflation rate of services items with an annual repricing pattern responded to the past inflationary shocks with some lag.

Advancing the capital markets union in Europe: a roadmap for harmonising securities post-trading

06/20/2025 European Central Bank Central banks

Harmonising European post-trade activities is essential for bolstering capital markets and better serving European citizens and companies. Progress is required in both enhancing the current landscape and developing digital solutions. This article concentrates on the present post-trade environment, with a particular focus on non-harmonised elements, particularly in securities settlement, collateral management and asset servicing.

The outlook for euro area business investment – findings from an ECB survey of large firms

06/20/2025 European Central Bank Central banks

This box summarises the findings of a recent ECB survey of leading non-financial companies on the outlook for business investment. The responding firms anticipate more subdued euro area investment growth over the next three years but increasing investment in other advanced economies and emerging markets. The responses suggest that, among major recent developments, technological change is the most important factor influencing investment strategies.

US trade policies and the activity of US multinational enterprises in the euro area

06/20/2025 European Central Bank Central banks

This box provides an overview of how US multinational enterprises (MNEs) shape euro area trade patterns. It focuses particularly on trade with the United States in the light of ongoing trade tensions and their potential impact. MNEs based in the United States contribute substantially to euro area economic activity. In particular, these companies shape euro area trade in goods with the United States via substantial exports of pharmaceutical products, intragroup trade and contract manufacturing.

The transmission of monetary policy: from mortgage rates to consumption

06/18/2025 European Central Bank Central banks

This article analyses the transmission of monetary policy to consumption via its impact on mortgage payments. Simulations using the current distribution of loans across households show that, despite rate cuts, a substantial part of past tightening is still in the pipeline. The average interest rate on outstanding mortgages is expected to continue to increase, translating into a persistent drag on the expected consumption recovery.

US financial conditions and their link to economic activity: the role of equity valuations

06/17/2025 European Central Bank Central banks

This box explores whether the effect of tightening financial conditions on US economic growth varies depending on the level of equity valuations. Financial conditions indices (FCIs) offer a consolidated measure of the costs of financing for households, firms and governments and typically incorporate interest rates, equity prices, corporate bond spreads and exchange rates. Using an exemplary FCI, we find that equity prices significantly influence US financial conditions when equity markets are overvalued. That, however, is shown to weaken their economic growth signal.

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