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Rubric www.ecb.europa.eu © Monetary and credit analysis Bettina Landau Monetary Analysis Division DG Monetary Policy 13 th ECB Central Banking Seminar, Frankfurt am Main, 3 July 2019
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Monetary and credit analysis
Bettina Landau Monetary Analysis Division DG Monetary Policy
13th ECB Central Banking Seminar, Frankfurt am Main, 3 July 2019
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1 Why monetary analysis?
2 Conceptual framework for monetary analysis
3 Money
4 Bank lending channel
5 The use of financial accounts
Overview
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Why monetary analysis?
1. Monetary aggregates have important leading indicator
properties in the euro area
- M3 for inflation
- M1 for output
2. Analysis of loans and financing costs helps to understand the
monetary policy transmission mechanism
3. Analysis of banks’ balance sheets provides important
information on the banking sector
4. Monitoring financial accounts contributes to robust assessment
of transmission beyond bank lending channel
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Monetary trends are key for assessing risks to price stability over the medium to longer term
M3 and consumer price inflation (annualised quarter-on-quarter percentage changes;
deviation from mean)
Sources: ECB, ECB calculations. Latest observation: December 2018.
Money good leading indicator to price inflation in the medium- to long-term There is a robust long-run relationship between money growth and inflation Monetary analysis helps extracting the signal (the appropriate underlying rate of monetary expansion) that is relevant for identifying risks to price stability
Close link between money and inflation in the euro area
0
2
4
6
8
10
12
14
16
18
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
M3 ann. gr. low freq. HICP inflation low freq.
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The ECB’s monetary policy strategy assigns a prominent role to monetary analysis
Governing Council takes monetary policy decisions based on a unified overall assessment of risks to price stability
Price stability primary objective
Analysis of monetary trends
Analysis of economic
dynamics and shocks
Full set of information
Cross -checking
ECB’s monetary policy strategy
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1 Why monetary analysis?
2 Conceptual framework for monetary analysis
3 Money
4 Bank lending channel
5 The use of financial accounts
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Monetary analysis
Higher frequency developments
asset prices financing conditions, credit channel, bank
behaviour, OFIs
Economic analysis
Projections
monetary / financial scenarios
Risks to price stability
Identify underlying rate of
monetary expansion
Detailed assessment of components, counterparts, sectoral contributions, etc.
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Med
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Conceptual framework for monetary analysis
7
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Standard monetary policy: ECB key interest rates
Price developments
Expectations Money market interest rates
Supply and demand of goods
and labour markets
Bank capital Bank
funding cost
Credit standards
Deposit and lending
rates
Market-based
financing
OFI and other non-
bank financing
Exchange rate
Asset prices and wealth
Money Credit
Stylised representation of the monetary policy transmission N
on Standard monetary policies
Sovereign bond market
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1 Why monetary analysis?
2 Conceptual framework for monetary analysis
3 Money
4 Bank lending channel
5 The use of financial accounts
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Resilient broad and narrow money growth
Sources: Eurostat, ECB. Latest observation: 2019 Q1 for real GDP growth, April 2019 for real M1 growth.
Real M1 and real GDP (annual percentage changes)
Source: ECB. Notes: Based on quarterly data. Latest observation: 2019 Q1.
M3 and M1 growth (annual percentage changes)
-8
-4
0
4
8
-4
0
4
8
12
16
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
real M1 annual growth (shifted 1 year ahead, lhs)
real GDP annual growth (interpolated, rhs)M3 annual growth rate M1 annual growth rate
-2
0
2
4
6
8
10
12
14
-2
0
2
4
6
8
10
12
14
2010 2011 2012 2012 2013 2014 2015 2016 2017 2018
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Diminishing support from APP to M3 replaced by other sources
Source: ECB. Latest observation: April 2019.
Sources of broad money creation (accumulated annual percentage changes since December
2017; contributions in percentage points)
Source: ECB. Latest observation: April 2019.
M3 counterparts (annual percentage changes, contributions in percentage
points)
Other counterpartsCredit to the general government by MFIs excluding EurosystemNet external assetsCredit to the private sector by MFIs excluding EurosystemEurosystem purchases of non-MFI debt securitiesM3
-6
-4
-2
0
2
4
6
8
10
12
-6
-4
-2
0
2
4
6
8
10
12
2013 2014 2015 2016 2017 2018 2019-6-5-4-3-2-1012345
-6-5-4-3-2-1012345
Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19
Other counterpartsCredit to the private sector by MFIs excluding EurosystemNet external assetsCredit to the general government by MFIs excluding EurosystemEurosystem purchases of non-MFI debt securitiesM3
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Improving net external assets
Source: ECB. Notes: The grey area (“Other”) displayed a significant increase in December 2016. This reflected a significant increase in BoP’s errors and omissions, as well as a reduction in the discrepancy between MFIs’ net external assets derived from BSI statistics and those derived from BoP. Latest observation: April 2019.
Source: ECB and ECB calculations. Notes: Bars depicted with the sign of monetary flows, i.e. financial investments abroad by resident non-MFIs are plotted with inverted sign. Latest observation: April 2019.
Direct and portfolio investment by non-MFIs (monthly flows in EUR bn)
MFIs net external assets and the monetary presentation of the B.o.P
(12-month flows in EUR bn)
-800
-600
-400
-200
0
200
400
600
-800
-600
-400
-200
0
200
400
600
2012 2013 2014 2015 2016 2017 2018 2019
OtherDirect investment (non-MFIs)Portfolio investment (non-MFIs)Current account (non-MFIs)MFIs' net external assets
-250
-200
-150
-100
-50
0
50
100
150
200
250
-250
-200
-150
-100
-50
0
50
100
150
200
250
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19
Residents
Non-Residents
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1 Why monetary analysis?
2 Conceptual framework for monetary analysis
3 Money
4 Bank lending channel
5 The use of financial accounts
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Sources: Markit Iboxx, ECB MIR. Notes: Deposit rates are on new business and bond yields include both high yield and investment grade debt. The values of bond yields shown represent monthly averages of the underlying daily values. Composite funding rates are the weighted cost of deposits and market debt funding. Latest observation for composite and deposit rates: April 2019; for bond yields: 21 June 2019.
Composite bank funding costs (percentages per annum)
Source: ECB. Notes: Euro area resident deposits exclude long-term deposits held by OFIs to account for the impact of retained securitization. Main liabilities exclude capital and reserves and long-term deposits held by OFIs to account for the impact of retained securitization. Latest observation: April 2019.
Bank funding structure (percent of main liabilities)
Bank funding structure shields funding costs from market pressure
0
1
2
3
4
5
2012 2014 2016 2018
DE ES FR IT EA
Composite funding rates
0.0
0.5
1.0
1.5
2.0
2012 2014 2016 2018
Deposit rates
0
2
4
6
8
10
12
2012 2014 2016 2018
Bond yields
0
10
20
30
40
50
60
2004 2008 2012 2016
MFI debt securities issuanceborrowing from Eurosystemdeposits of euro area residents adjusted for OFIsinterbank deposits (incl. MMFs)external liabilities
IT, ES, GR, PT, CY, SI, IE
0
10
20
30
40
50
60
2004 2008 2012 2016
Other countries
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Source: ECB. Notes: The indicator for the cost of borrowing is calculated by aggregating short- and long- term rates using 24-months moving average of new business volumes. Latest observation: April 2019.
Source: ECB. Notes: The date of May 2014 was selected as it immediately precedes the ECB’s announcement of some monetary policy measures taken to enhance the functioning of the monetary policy transmission mechanism on 5 June 2014 (announcement of the modalities of TLTROs and intensification of preparatory work related to outright purchases of ABS). Reference rates are monthly averages. Latest observation: April 2019.
Bank lending rates at historical lows
Lending rates to NFCs and households for house purchase
(percentages per annum)
Rate reductions since the credit easing announcement
(percentages per annum , May 2014 – April 2019)
-200
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
-200
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
EONIA DFR EA DE FR IT ES
cost of borrowing for NFCsreference ratesEA DE ES FR IT
0
1
2
3
4
5
6
7
2004 2007 2011 20150
1
2
3
4
5
6
7
2004 2007 2011 2015
NFCs households
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Diverse loan growth developments
Source: ECB. Notes: Adjusted loans (i.e. adjusted for sales, securitisation and cash pooling activities). Data for Spain from Jan. 2004 to Dec. 2009 are non-seasonally adjusted. Latest observation: April 2019.
Source: ECB. Latest observation: April 2019.
MFI loans to households (annual percentage changes)
MFI loans to NFCs (annual percentage changes)
-20
-10
0
10
20
30
40
-20
-10
0
10
20
30
40
2004 2006 2008 2010 2012 2014 2016 2018
DE ES FR IT EA
-10
-5
0
5
10
15
20
25
-10
-5
0
5
10
15
20
25
2004 2006 2008 2010 2012 2014 2016 2018
DE ES FR IT EA
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Sources: ECB iMIR and ECB calculations. Notes: NFC lending rates are on outstanding loans to non-financial corporations weighted by volume. Chart shows average rates across bidders and non bidders in deviation from rates in September 2014. Vulnerable countries are Ireland, Greece, Spain, Italy, Cyprus, Portugal and Slovenia. Other countries are all the remaining euro area countries.
Lending rates to NFCs of TLTRO bidders and non bidders
(percentage points; deviations from September 2014)
Sources: ECB iBSI and ECB calculations. Notes: The chart shows the notional stock of loans to NFCs across bidders and non bidders relative to September 2014. Vulnerable countries are Ireland, Greece, Spain, Italy, Cyprus, Portugal and Slovenia. Other countries are all the remaining euro area countries.
Lending volumes to NFCs of TLTRO bidders and non bidders
(notional stock; September 2014=1)
Impact of targeted longer-term refinancing operations (TLTRO)
0.8
0.9
1.0
1.1
1.2
0.8
0.9
1.0
1.1
1.2
2013 2015 2017
Non bidders Bidders
0.8
0.9
1.0
1.1
1.2
0.8
0.9
1.0
1.1
1.2
2013 2015 2017
Other countries
Vulnerable countries
-1.5
-1.0
-0.5
0.0
0.5
-1.5
-1.0
-0.5
0.0
0.5
2013 2015 2017
Non bidders Bidders
-1.5
-1.0
-0.5
0.0
0.5
-1.5
-1.0
-0.5
0.0
0.5
2013 2015 2017
Other countries
Vulnerable countries
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Bank Lending Survey points to slowdown in credit demand
Source: ECB (BLS). Notes: “Cost of funds and balance sheet constraints” as unweighted average of “cost related to capital position”, “access to market financing” and “liquidity position”; “Risk perception” as unweighted average of “general economic situation and outlook”, “industry or firm-specific situation and outlook/borrower’s creditworthiness” and "risk on collateral demanded"; Competition as “bank competition”, “non-bank competition” and “competition from market financing”. Latest observation: 2019 Q1 (April 2019 survey).
Source: ECB (BLS). Notes: “Other financing needs” is the unweighted average of “mergers/acquisitions and corporate restructuring” and “debt refinancing/restructuring and renegotiation”; “use of alternative finance” is the unweighted average of “internal financing”, “loans from other banks”, “loans from non-banks”, “issuance/redemption of debt securities” and “issuance/redemption of equity”. Latest observation: 2019 Q1 (April 2019 survey).
Changes in net demand for loans to NFCs and contributing factors
(average net percentages per category)
Changes in credit standards for loans to NFCs and contributing factors
(average net percentages per category)
-10
0
10
20
30
40
50
60
-10
0
10
20
30
40
50
60
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
Q1
2019
Q2
2019
use of alternative finance other financing needs
general level of interest rates inventories and working capital
fixed investment demand - actual
demand - expected
-20
-15
-10
-5
0
5
-20
-15
-10
-5
0
5
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
Q1
2019
Q2
2019
banks' risk tolerancerisk perceptionscompetitioncost of funds and balance sheet constraintscredit standards - actualcredit standards - expected
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1 Why monetary analysis?
2 Conceptual framework for monetary analysis
3 Money
4 Bank lending channel
5 The use of financial accounts
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Trends in the external financing structure of euro area NFCs Share of bank and non-bank financing in total
NFC financing in the euro area and the United States
(cumulated net transactions, percentages)
Sources: ECB, Federal Reserve System. Latest observation: 2018 Q4.
External financing of euro area NFCs based on selected instruments (annual flows: EUR billions)
Source: Eurostat, Dealogic, ECB and ECB estimates. Notes: MFI loans adjusted for sales, securitisation and cash pooling activities. Loans from non-MFIs include loans from OFIs and ICPFs. Latest observation: 2018 Q4 for EAA data. Estimates for 2019 Q1 based on ECB BSI and SEC data and Dealogic.
-300
-150
0
150
300
450
600
750
900
2004 2006 2008 2010 2012 2014 2016 2018
Loans from non-MFIs to NFCs (excl. securitisations)Net issuance of listed shares by NFCsNet issuance of debt securities by NFCsMFI loans to NFCs (adjusted)Total
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002-2008 2002-2018Q4 2002-2008 2002-2018Q4
EA US
Bank Non-bank
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Ongoing balance sheet adjustments for NFCs and households
Household gross debt in selected EA countries (percent of gross disposable income)
Sources: Eurostat, ECB, ECB calculations. Notes: Debt is total loans granted to households by all institutional sectors incl. also intra-sectoral loans. Latest observation: 2018 Q4.
NFC consolidated gross debt in selected EA countries
(percent of NFC gross value added)
Sources: Eurostat, ECB and ECB calculations. Notes: Consolidated gross debt includes total loans granted to NFCs net of intra-sectoral loans, debt securities issued and pension liabilities. Latest observation: 2018 Q4.
75
100
125
150
175
200
225
75
100
125
150
175
200
225
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
DE ES FR IT EA
0
20
40
60
80
100
120
140
160
0
20
40
60
80
100
120
140
160
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
DE ES FR IT EA
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Debt servicing costs of NFCs and households at historical low
NFC gross interest payments in selected EA countries
(percent of gross operating surplus)
Sources: Eurostat, ECB, ECB calculations. Notes: Gross interest payments before FISIM allocation. Latest observation: 2018 Q4.
Household gross interest payments in selected EA countries
(percent of gross disposable income)
Sources: Eurostat, ECB, ECB calculations. Notes: Gross interest payments before FISIM allocation. Latest observation: 2018 Q4.
22
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
DE ES IT EA FR
1
2
3
4
5
6
7
8
9
1
2
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
DE ES FR IT EA
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