Isabel Schnabel: Monetary policy and financial stability

Speech by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at the Fifth ESRB (European Systemic Risk Board) annual conference, Frankfurt am Main, 8 December 2021.

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

In 2008 the global economy was brought to its knees by a financial crisis that saw many of the largest financial institutions collapse, or teeter on the brink of collapse, with too little capital to support the economy when it was most needed.

The consequences of the global financial crisis were still being felt many years later. In the euro area, where the sovereign debt crisis of 2011/12 hit at a time when the economy had just begun healing, it took more than ten years for unemployment to fall back to the levels seen in early 2008. The crisis left deep socioeconomic scars on millions of young people who faced the most precarious job market in decades.

The efforts to rebuild our financial system to ensure that history does not repeat itself continue to this day. Tighter regulation and supervision have succeeded in making our financial system safer and more resilient. Unlike in 2008, banks acted as a critical backstop to our economy when the coronavirus (COVID-19) pandemic hit Europe last year, benefiting from the capital buffers they had built up in the years before.

And yet, new risks to financial stability have appeared on the horizon. In our latest financial stability review, European Central Bank (ECB) staff identified pockets of exuberance in credit, asset and housing markets, echoing similar findings by experts at the International Monetary Fund. House prices, in particular, are rising at their fastest pace since 2005, while mortgage lending standards are deteriorating.