SUERF Bocconi - The size of central bank balance sheets and financial stability - 20240409

On 9 April 2024 around 300 international experts met for a SUERF-BAFFI Bocconi webinar on “The Size of Central Banks’ Balance Sheets and Financial Stability”.
Over the last decade, the balance sheet of the Eurosystem has - similarly to other central banks worldwide - increased almost 5-fold as a share of GDP. The fighting of various crises was the trigger and motivation for this expansion. The benefits of avoiding catastrophic outcomes, such a financial and/or sovereign debt crises, were seen to outweigh potential negative side-effects. Now, the Eurosystem - like other central banks - needs to decide whether to reduce its balance sheet to non-crisis levels or to maintain a very large balance sheet in the post-crisis new normal.
This question is closely linked to central banks’ future monetary policy operation frameworks. From a financial stability perspective, the key difference various options is the steady-state size of the ECB’s balance sheet. A “floor system” for inter-bank money market rates requires a large central bank balance sheet, while a “corridor system” suggests a substantial reduction of the current balance sheet.
In non-crisis times, what would be reasons to maintain a large Eurosystem balance sheet? What financial stability risks might arise from maintaining a very large central bank balance sheet? Would potential benefits of a large central bank balance sheet outweigh the potential cost in terms of financial stability?
This panel brought together top researchers who have published on several aspects regarding the interaction between large central bank balance sheets and financial stability.
Speakers and timeline:
00:00:14 - Ernest Gnan, Secretary General, SUERF: Welcome and introduction
00:02:24 - Stefan Kerbl, Oesterreichische Nationalbank: Introduction of speakers and moderation
00:06:39 - Charles Goodhart, LSE I SUERF Fellow: A Central Bank’s Optimal Balance Sheet Size?
00:15:35 - Viral Acharya, New York University Stern School of Business: Liquidity Dependence and the Waxing and Waning of Central Bank Balance Sheets
00:32:34 - José-Luis Peydro, Imperial College Business School: Monetary Policy and Financial Stability
00:46:11 - Tobias Berg, Goethe University Frankfurt: Unintended Consequences of QE: Real Estate Prices and Financial Stability
00:54:11 - Robin Brooks, Brookings Institution: Fiscal Dominance
01:04:57 - Discussion and Q&A.
01:33:55 - Stefan Kerbl: Concluding remarks and farewell
Presentation slides: www.suerf.org/events/the-size...
Program coordination: Ernest Gnan, SUERF, Stefan Kerbl and Stefan Schmitz, Oesterreichische Nationalbank
© SUERF 2024. Views expressed are those of the speakers only and not necessarily of their affiliated institutions.
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