What impact does the ECB’s quantitative easing policy have on bank profitability? Bruegel Policy Contribution Issue No. 20 | 2016

Demertzis, Maria and Wolff, Guntram B. (2016) What impact does the ECB’s quantitative easing policy have on bank profitability? Bruegel Policy Contribution Issue No. 20 | 2016. [Policy Paper]

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Abstract

From the Introduction. European Central Bank policy is and remains controversial. Since the start of the crisis, the ECB’s balance sheet has increased three-fold. The quantitative easing (QE) programme that started in the second quarter of 2015 increased the size of the ECB’s balance sheet to 117 percent of GDP1 . Beyond the risks arising from sovereign bond holdings, the debate on QE mainly centres on four aspects. The first is the question of whether the programme actually contributes to inflation. The second is the question of when is the right moment to end it, irrespective of whether it actually works. Third, there is an important debate about whether QE unduly ‘dispossesses’ savers. Finally, there is the question of whether QE should be ended earlier because of its impact on financial stability and, in particular, the profitability of banks and insurers. Depending on the weight given to each of these four aspects and how they are assessed, different conclusions have been drawn regarding ECB policy. This paper focuses on the fourth aspect and in particular the impact on banks2 . In the introduction, we briefly review a few arguments around the first three aspects.

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