Andreas Ittner: "The horses and the carriage"

Speech given by Mr Andreas Ittner, Vice Governor of the Central Bank of the Republic of Austria, at the Fourth Research Workshop of the Task Force on Banking Analysis for Monetary Policy of the MPC, Vienna, 26 January 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The better understanding of the relationship between monetary policy and banking is not only important from a monetary policy perspective but also from a financial stability perspective. Therefore, I expect that this workshop improves the understanding of these two perspectives.

The agenda names a host of critical issues in this respect:

• The effects of the prolonged period of very low interest rates and unconventional monetary policy including the continued central bank balance-sheet expansion
• on banks' incentives to generate loans,
• profitability and
• their cost of equity.

As a consequence, the workshop also contributes to the international and inter-institutional debate about the interaction between monetary policy and financial stability. Let me start with a question: Are financial stability and monetary policy two horses that try to pull the carriage "economy" in opposite directions?

To answer that question I will critically assess some statements that are often mentioned in public discussions, but some of them do not seem to be well-grounded.