We study the impact of cyclical systemic risks on banks’ profitability in the euro

area within a panel quantile local projection setting, with the ultimate goal to inform

the calibration of the Countercyclical Capital buffer (CCyB). Compared to previous

studies, we augment our model to control for unobserved bank-specific characteristics

and year-fixed effects and find a lower degree of heterogeneity in the estimated effects

across the conditional distribution of bank returns on assets. We propose a simple

yet intuitive framework to calibrate the CCyB through the cycle, including the so

called "positive neutral" rate. The model suggests a target positive neutral rate for

the euro area ranging from 1.1% to 1.8%. Furthermore, the calibrated CCyB rates

are consistent with the evolution of domestic cyclical systemic risks in the countries

considered. The results further show that the adoption of a positive neutral CCyB

approach allows for an earlier and more gradual build-up of the buffer, but does not

lead to higher CCyB requirements at the peak of the cycle. Importantly, a positive

neutral CCyB strategy would have implied that most euro area countries would have

had a positive CCyB in place at the onset of the COVID-19 pandemic.

Recent technological innovations and demographic trends have fueled an unprecedented surge in private, non-bank credit, driven in part by distributed ledger technology (DLT) and tokenization. In contrast to traditional bank lending which expands the money supply through fractional reserve banking this new mode of nancing reallocates existing funds without creating additional money. Using a stylized Quantity Theory of Money framework, we demonstrate how this shift triggers a critical decoupling between money supply and real output, generating de ationary pressures that could ultimately sti e economic growth. Our ndings raise important questions about the e cacy of conventional monetary policy in an era increasingly dominated by DLT-driven private credit. We conclude by proposing policy options designed to recalibrate money creation mechanisms, ensuring monetary stability and sustained growth.

We analyse the effect of platform fragmentation due to the introduction of fast payment systems (FPS) -- such as FedNow, Pix and UPI -- on the cost of processing payments. Funds sent using FPS offer the recipient greater convenience because they are available for use in real time. However, this could come at the cost of making legacy payment platforms more expensive, owing to the reduction in netting opportunities arising from payment migration to the FPS. We highlight that whether the benefits of providing a choice of payment platforms outweigh the negative externalities imposed by each platform on the other depend on the cost and benefit of immediate access to funds, as well as the settlement protocols of the payment platforms.

Using a proprietary gilt market dataset, this paper identifies how market microstructure frictions affect system-wide market liquidity. Starting from the structure of the repo market, individual dealer constraints and intermediation frictions generate inefficiencies with welfare implications through three independent, albeit related, mechanisms. More broadly, we provide a new perspective on how financial imperfections in the money market, measured by market power and relationship trading, affect the real economy through shocks to individual dealer capacity.