The European Central Bank published analysis finding that valuation losses on banks’ securities during the 2022-23 monetary tightening cycle reduced access to secured interbank funding and amplified the contraction in corporate lending. By the third quarter of 2023, euro area banks had lost an average of about 1% of total assets, equivalent to 12% of equity, with the largest losses on securities held at amortized cost. A one standard deviation increase in securities losses was associated with an almost 4% decline in interbank borrowing and a 2.5% decline in corporate lending. The effects were concentrated among banks with limited liquidity buffers, high collateral use or greater future liquidity needs, supporting a collateral-based transmission mechanism rather than a capital channel. Intragroup funding partly offset losses for domestic subsidiaries, but not foreign subsidiaries, indicating that barriers to cross-border liquidity transfers can produce divergent credit conditions across the euro area.
European Central Bank2026-07-28
European Central Bank analysis finds securities losses constrained secured funding and corporate lending
European Central Bank analysis found that securities losses during the 2022-23 tightening cycle reduced banks’ secured interbank funding and corporate lending. A one standard deviation increase in losses was associated with an almost 4% decline in interbank borrowing and a 2.5% decline in corporate lending. Intragroup liquidity mitigated the effect for domestic subsidiaries but not foreign subsidiaries.