Weaponisation of finance: the role of European central banks and financial sanctions against Russia

In response to Russia's full-scale invasion of Ukraine, the Group of Seven (G7) countries and the European Union (EU) adopted a variety of financial sanctions, including the freezing of foreign reserve assets of the Central Bank of Russia held by other central banks. Drawing on a Principal-Agent framework and on speeches, newspaper articles and interviews with policy-makers, this study examines what it means for the ECB and the central banks of the Eurosystem to be involved in these sanctions. As a consequence of these actions, these central banks have been enlisted in monetary and financial warfare. Moreover, the three-fold objective of the ECB has de facto effectively been reweighted somewhat, as the focus on 'price stability' (primary objective) has become seemingly temporarily less prominent. Instead, the secondary and tertiary objectives have moved centre-stage, favouring geopolitical considerations.

Global assessment of the COVID-19 impact on IFRS 9 loan loss provisions

PurposeThis article aims to analyze the impact of COVID-19 measures by governments and central banks on International Financial Reporting Standards (IFRS) 9 loan loss provisions (LLPs). Changes in the total amount of LLPs, distribution of outstanding loan balance among IFRS 9 stages and credit risk parameters used for calculation are investigated for each world region where banks report under IFRS.Design/methodology/approachData for a global selection of 105 banks reporting under IFRS were collected from 2019 to 2020 annual reports, financial statements, and Pillar III reports. These data provide the basis to empirically analyze the impact of COVID-19 on LLPs.FindingsIn most world regions Stage 2 balances increase while Stage 3 balances remain comparatively stable. The credit risk parameters used for computing LLPs remained stable in 2020. However, in China, the impact of COVID-19 on banks was not detected. Mean Stage 1 balances for Chinese banks increased slightly during the pandemic. Aside from the COVID-19 impact, we find that LLPs, credit risk parameters, and loss absorption capacities are significantly lower for banks in Canada, Oceania and Western Europe compared to those in the rest of the world.Originality/valueThere exists previous research examining the COVID-19 impact on financial stability, implementation of emergency rules and country-wide analyses to anticipate default rates depending on recovery scenarios. However, this is the first global study on the immediate impact of COVID-19 on LLPs. It reveals the significant differences between world regions and provides implications about their resilience against future credit shocks.

Should investors rely on central bank asset purchases to backstop markets?

During the global financial crisis, central banks in advanced economies cut policy rates to near zero, and then provided further stimulus via balance sheet expansion. In many instances this took the form of quantitative easing — central banks creating new money with which to purchase securities. With years of quantitative easing behind us, and aggressive measures from central banks during the COVID-19 pandemic, should investors now expect central banks to backstop financial markets? This paper examines asset purchases from the twin perspectives of monetary and financial stability, and argues that investors should not expect central banks to always come to their rescue. © Henry Stewart Publications 1752-8887 (2023).

Drivers of trust in the ECB during the pandemic

Trust in the European Central Bank (ECB) is vital. However, little is known about trust in the ECB during the COVID-19 pandemic. We use the rich pilot microdata from the ECB Consumer Expectations Survey during 2020–2021 on six key euro area countries to shed light on trust in the ECB during the pandemic. Our findings suggest that there is ample room to improve consumers' trust in the ECB. Personal COVID-19 experiences play a role: respondents who reduced the number of hours worked due to COVID-19 have lower trust in the ECB than those with unchanged working hours. Trust in the ECB varies within countries. It is highest among males and people with a good financial situation. It increases with financial knowledge, education, income, and wealth.