Isabel Schnabel: The sovereign-bank-corporate nexus – virtuous or vicious?

Speech by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at the LSE conference on Financial Cycles, Risk, Macroeconomic Causes and Consequences, Frankfurt am Main, 28 January 2021.

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

One year after the first cases were reported in Europe, the coronavirus (COVID-19) pandemic continues to take a tragic human toll and to pose enormous challenges to workers, firms, the financial system and policymakers in the euro area.

Without the forceful responses of fiscal, monetary and prudential authorities the economic and social costs of this crisis would have been significantly higher. Governments, in particular, have stabilised aggregate demand and incomes by absorbing economic and financial risks of the private sector as the crisis unfolded.

Through the generous issuance of guarantee schemes, governments secured a continuous flow of credit to firms, which supported economic growth and protected financial stability. Monetary policy has complemented these efforts by providing ample liquidity and restoring favourable financing conditions.