CBDC and the operational framework of monetary policy with G. Nuño and C. Thomas
Journal of Monetary Economics, Volume 151, April 2025, 103762.
Abstract  Other versions  Media  Awards 

We analyze the impact of central bank digital currency (CBDC) on the operational framework of monetary policy and the macroeconomy. We develop a New-Keynesian model with a frictional interbank market, central bank deposit and lending facilities, and household preferences for different liquid assets, calibrated to the euro area. CBDC adoption implies a contraction in bank deposits, which is absorbed by a fall in reserves and, if large enough, increased recourse to central bank credit. The resulting changes in the operational framework (from ‘floor’ to ‘corridor’, and then to ‘ceiling’) thus shape the impact of CBDC on credit, investment and output.

• BIS Working Paper 1126
• CEPR Discussion Paper 18750
• Banco de España Working Paper 2404

• VoxEU article
• SUERF Policy Brief 809

• 2024 Antonio Dionis Soler Research Prize, Fundación Instituto Español de Analistas

Mapping exposures of EU banks to the global shadow banking system with M. D’Errico, N. Killeen, V. Luz, T. Peltonen, R. Portes and T. Urbano
Journal of Banking and Finance, Volume 134, January 2022, 106168.
Abstract  Other versions  Media 

This paper provides a unique snapshot of the asset exposures of EU banks to shadow banking entities within the global financial system. Drawing on a rich and novel dataset, we show that 60% of the EU banks’ exposures are towards non-EU entities, particularly US-domiciled shadow banking entities. We assess the degree of concentration across different types of shadow banking counterparties. We show that while banks’ exposures are diversified at the individual level, this diversification leads to high overlap across different types of shadow banking entities, with consequent systemic risk. We also examine how bank- and country-level characteristics relate to the exposures of EU banks to shadow banking entities. Our results emphasise the importance of monitoring these cross-border and cross-sector exposures and closing remaining data gaps.

• NBER Working Paper 23280 
• CEPR Discussion Paper 11919 
• ESRB Working Paper 40 

• VoxEU article 

The Heterogeneous Bank Lending Channel of Monetary Policy with S. Bigio, S. Garcia-Villegas, J. Marbet and G. Nuño
Submitted.
Abstract  Other versions  Media 

This paper develops a quantitative model to analyze the role of bank heterogeneity in the transmission of monetary policy through the bank lending channel. We calibrate the model to the euro area to capture two distinct forms of heterogeneity: ex-ante differences in loan pricing practices and ex-post variation in capital positions driven by idiosyncratic default risks. Consistent with empirical impulse responses, banks in fixed-rate economies experience severe net interest margin compression during monetary tightening as funding costs rise while income from legacy loans remains unchanged, leading to capital erosion and deeper lending contractions. The elasticity of new lending to monetary policy is approximately one-third larger in fixed-rate economies. Highly leveraged banks drive these differences: without default risk, banks would remain far from their regulatory limits. We discuss additional tradeoffs between monetary policy and financial stability, study the implications for gradual policy rate increases, and demonstrate fundamental limitations of representative-agent banking models.

• NBER Working Paper 35239
• CEPR Discussion Paper 21519
• Banco de España Working Paper 2620
• CESifo Working Paper 12676

• SUERF Policy Brief 1546

A macroeconomic model of banks’ endogenous systemic risk taking with D. Martinez-Miera and J. Suarez
Submitted.
Abstract  Other versions 

We study banks’ systemic risk-taking decisions in a dynamic general equilibrium model, highlighting the macroprudential role of bank capital requirements. Banks decide on their unobservable exposure to systemic shocks by balancing risk-shifting gains against the value of preserving their capital after such shocks. Capital requirements reduce systemic risk taking, but at the cost of reducing credit and output in calm times, generating welfare trade-offs. We find that systemic risk taking is maximal after long periods of calm and may worsen if capital requirements are countercyclically adjusted. Removing deposit insurance introduces market discipline but increases the bank capital necessary to support credit, implies lower (though far from zero) optimal capital requirements and has nuanced social welfare effects.

• CEPR Discussion Paper 19532 
• Banco de España Working Paper 2441 

Breaking the Sovereign-Bank Nexus Reject and resubmit, Review of Economic Studies.
Abstract  Other versions  Awards 

This paper develops a quantitative dynamic general equilibrium model that features endogenous bank failure and sovereign default risk. It studies the feedback loop between sovereign and banking crises, and evaluates the effectiveness of bank capital regulation in addressing it. In the model, bank failure contributes to an increase of sovereign default risk through the government bailout of bank creditors. Meanwhile, holding high-yield risky sovereign bonds may be attractive to banks protected by limited liability. By increasing banks' failure risk and their funding costs, sovereign exposures hurt bank lending and contribute to further contractions in aggregate economic activity. Capital requirements shape banks' incentives to invest in sovereign debt. More stringent capital regulation makes banks safer, weakening the sovereign-bank nexus. This comes at the cost of constraining the overall supply of credit.

• Unicredit Foundation Working Paper 129

• 2019 EEA Job Market Best Paper Award, UniCredit Foundation
• 2019 ECB Young Economists’ Competition (finalist), ECB Forum on Central Banking
• 2019 Marjolin Prize, Best under 40 contribution to the 34th SUERF Colloquium
• 2017 Best Third-Year Paper Award, CEMFI

The procyclicality of expected credit loss provisions with J. Suarez
Revise and resubmit, Review of Corporate Finance Studies.
Abstract  Other versions  Media 

The Great Recession has pushed accounting standards for banks' loan loss provisioning to shift from an incurred loss approach to an expected credit loss approach. IFRS 9 and the incoming update of US GAAP imply a more timely recognition of credit losses but also greater responsiveness to changes in aggregate conditions, which raises procyclicality concerns. This paper develops and calibrates a recursive ratings-migration model to assess the impact of different provisioning approaches on the cyclicality of banks' profits and regulatory capital. The model is used to analyze the effectiveness of potential policy responses to the procyclicality problem.

• CEPR Discussion Paper 13135

• VoxEU article

Monetary policy transmission via banks to firms Contributing author
ECB Occasional Paper 389 (2026).

Analysis of cyclical systemic risks in Spain and of their mitigation through countercyclical bank capital requirements Contributing author
Banco de España Occasional Paper 2414 (2024).

The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area Contributing author
ECB Occasional Paper 272 (2021).

The relaxation of bank capital and liquidity requirements in the wake of the coronavirus crisis with R. Repullo
European Parliamentary Research Service PE 651.373 3 (2020).

Assessing the cyclical implications of IFRS 9 – a recursive model with J. Suarez
ESRB Occasional Paper 17 (2017).

Shedding light on dark markets: First insights from the new EU-wide OTC derivatives dataset with I. Aldasoro, C. Aymanns, M. D'Errico, L. Rousova, P. Hoffmann, S. Langfield, M. Neychev and T. Roukny
ESRB Occasional Paper 11 (2016).