The trade-off between monetary policy and bank stability

This paper investigates the transmission of monetary policy to systemic risk of euro-area and U.S. banks between 2008and 2015. Using market measures of systemic risk and a VARto obtain monetary policy shocks, we find that accommodative policy generally has a positive effect on bank stability inthe euro area but a negative effect in the United States. Different transmission channels are at play: in the euro area theeffect works mainly through a stealth recapitalization channel,while in the United States the effect is due to risk-shifting.Moreover, transmission of monetary policy differs across bankbusiness models