Macroprudential Stress Test of the Euro Area Banking System Amid the Coronavirus (COVID-19) Pandemic

This article proposes a methodology for measuring the macroprudential policy stance based on a forward‐looking distance‐to‐tail metric derived from a large‐scale semi‐structural model. The model reflects the dynamics of 89 significant euro area banks and 19 euro area economies and two endogenous amplification mechanisms: the real economy banking sector and solvency funding feedback loops. Our results reveal a slight tightening of the macroprudential policy stance from 2017 to the end of 2019 that partially stemmed from adjusting macroprudential capital buffers and the phase‐in of other systemwide banking sector policies reflecting macroprudential intentions. This trend is abruptly interrupted at the onset of the Covid‐19 pandemic, when pronounced macrofinancial uncertainty led to a substantial increase in tail risks and reappears in 2021. Our assessment also reveals a high degree of co‐movement in macroprudential stances across the euro area countries.

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Macroprudential Stress Test of the Euro Area Banking System Amid the Coronavirus (COVID-19) Pandemic

Cited by 2 publications

References 1 publication

Looking at the Evolution of Macroprudential Policy Stance: A Growth-at-Risk Experiment with a Semi-Structural Model

Looking at the Evolution of Macroprudential Policy Stance: A Growth-at-Risk Experiment with a Semi-Structural Model

Measuring the macroprudential policy stance in the euro area with a semi‐structural model

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