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Luca Mingarelli
Market Operations
- Division
Money Market & Liquidity
- Current Position
-
Market Operations Expert
- Fields of interest
-
Financial Economics,Macroeconomics and Monetary Economics,Mathematical and Quantitative Methods
- Education
- 2014-2018
PhD, Imperial College London
- 20 November 2024
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2024Details
- Abstract
- This box examines the role of euro area banks in the intermediation of US dollar liquidity and maps the global structure of funding markets and their evolution. Euro area banks have significantly increased their involvement in US dollar repo and FX swap markets, particularly since the onset of the monetary policy tightening cycle in 2022. This increased intermediation exposes euro area banks and their counterparties to potential liquidity risks, especially during periods of market stress. The short-term nature of these markets, combined with high market concentration and the off-balance-sheet nature of FX swaps, can amplify the transmission of shocks. Central bank swap lines are crucial for providing dollar liquidity and mitigating these financial stability risks during times of stress.
- JEL Code
- G15 : Financial Economics→General Financial Markets→International Financial Markets
F31 : International Economics→International Finance→Foreign Exchange
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 30 May 2023
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2023Details
- Abstract
- Banks are connected to non-bank financial intermediation (NBFI) sector entities via loans, securities and derivatives exposures, as well as funding dependencies. Linkages with the NBFI sector expose banks to liquidity, market and credit risks. Funding from NBFI entities would appear to be the most likely and strongest spillover channel, considering that NBFI entities maintain their liquidity buffers primarily as deposits and very short-term repo transactions with banks. At the same time, direct credit exposures are smaller and are often related to NBFI entities associated with banking groups. Links with NBFI entities are highly concentrated in a small group of systemically important banks, whose sizeable capital and liquidity buffers are essential to mitigate spillover risks.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 31 October 2022
- WORKING PAPER SERIES - No. 2743Details
- Abstract
- Since the term was first coined in studies on the 1990s Japanese crisis, the concept of zombification has been investigated and revived repeatedly when concerns arise about credit misallocation and stagnating productivity growth in an economy. The starting point for these studies nearly always involves trying to identify the so-called ‘zombie’ firms. This has led in the past years to a proliferation of different definitions and identification methodologies. We survey the most prominent definitions, discussing advantages and limitations of each. We also undertake a comparison of methodologies on a common dataset for euro area firms from 2004-2019, with the exercise revealing limited overlap and low comparability in the firms identified by several prominent studies. In response, we introduce a formalisation of zombie-classifications which helps to make order in the growing number of variations and identification methodologies. Moreover, this formalisation also helps extending the concept of binary identification to that of fuzzy zombie-identification. In particular, we introduce a general procedure to turn arbitrary binary classifications into fuzzy ones showing it successfully increases consistency between zombie definitions.
- JEL Code
- L25 : Industrial Organization→Firm Objectives, Organization, and Behavior→Firm Performance: Size, Diversification, and Scope
D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
D24 : Microeconomics→Production and Organizations→Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
O40 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→General
- 1 August 2022
- WORKING PAPER SERIES - No. 2692Details
- Abstract
- Overlapping portfolios constitute a well-recognised source of risk, providing a channel for financial contagion induced by the market price impact of asset deleveraging. We introduce a novel method to assess the market price impact on a security-by-security basis from historical daily traded volumes and price returns. Systemic risk within the euro area financial system of banks and investment funds is then assessed by considering contagion between individual institutions’ portfolio holdings under a severe stress scenario. As a result, we show how the bias of more homogeneous estimation techniques, commonly employed for market impact, might lead to loss estimates that are more than twice as large as losses estimated with heterogeneous price impact parameters. Another new feature in this work is the application of a price-at-risk measure instead of the average market price impact to evaluate the tail risk of possible market price movements in scenarios of different severity. Our results also show that system-level losses at the tail can be three times higher than average losses using the same scenario.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
- 23 May 2022
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2022Details
- Abstract
- The ECB is continuing its work on incorporating climate-related risks into assessments of financial stability. This includes a new analysis of disclosure, pricing and greenwashing risks in financial markets, as well as continued monitoring of financial institutions’ exposure to transition and physical risks. There is some encouraging evidence of better disclosure by non-financial corporations and increasing awareness of climate-related risks in financial markets. Progress made by banks, however, has been more limited. Established and newer metrics show no clear evidence of a reduction in climate-related risks, revealing instead a potential for amplification mechanisms stemming from exposure concentration, cross-hazard correlation and financial institutions’ overlapping portfolios. These findings can inform evidence-based international and European policy debates around climate-related corporate disclosure, standards for sustainable financial instruments and climate-related prudential policies. More generally, amid high uncertainty around governments’ transition policies in an environment of volatile energy prices, further investments in the transition to a net-zero economy would also have a positive impact on medium-term growth and energy security.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G20 : Financial Economics→Financial Institutions and Services→General
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental Effects
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
- 11 March 2022
- WORKING PAPER SERIES - No. 2654Details
- Abstract
- In recent years there has been growing attention on the risks posed by climate change. One relevant question for financial stability is to which extent the materialisation of transition risks emerging from the sudden implementation of climate change mitigation policies would impact the financial system. In this paper we analyze the effects of changes in carbon price on the European banking system. We assess this climate change transition risk through a banking sector contagion model where firms are negatively impacted by an increase in carbon prices. Using a unique granular dataset we evaluate the consequences of a combination of different increases in carbon prices and firm emission reduction strategies. We find that taking early policy action, implying more gradual changes in carbon prices, is not expected to lead to adverse impacts on the banking system, especially if firms reduce their emissions efficiently. Conversely, a disorderly, abrupt transition to a low carbon economy requiring very high sudden changes in carbon prices might have disruptive effects on the financial system, especially if firms fail to reduce their emissions.
- JEL Code
- Q48 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Government Policy
Q54 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Climate, Natural Disasters, Global Warming
Q58 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Government Policy
- 6 August 2021
- WORKING PAPER SERIES - No. 2581Details
- Abstract
- This paper shows how the combined endogenous reaction of banks and investment funds to an exogenous shock can amplify or dampen losses to the financial system compared to results from single-sector stress testing models. We build a new model of contagion propagation using a very large and granular data set for the euro area. Based on the economic shock caused by the Covid-19 outbreak, we model three sources of exogenous shocks: a default shock, a market shock and a redemption shock. Our contagion mechanism operates through a dual channel of liquidity and solvency risk. The joint modelling of banks and funds provides new insights for the assessment of financial stability risks. Our analysis reveals that adding the fund sector to our model for banks leads to additional losses through fire sales and a further depletion of banks’ capital ratios by around one percentage point.
- JEL Code
- D85 : Microeconomics→Information, Knowledge, and Uncertainty→Network Formation and Analysis: Theory
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
L14 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Transactional Relationships, Contracts and Reputation, Networks
- 18 May 2021
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2021Details
- Abstract
- Policy measures aimed at supporting corporates and the economy through the coronavirus pandemic may have supported not just otherwise viable firms, but also unprofitable but still operating firms – often referred to as “zombies”. This has in turn raised questions about an increased risk of zombification in the euro area economy, which could constrain the post-pandemic recovery. Firm-level, loan-level and supervisory data for euro area companies suggest that zombie firms may have temporarily benefited from loan schemes and accommodative credit conditions – but likely only to a modest degree. These firms may face tighter eligibility criteria for schemes and more recognition of credit risk in debt and loan pricing in the future. Tackling the risk of zombification more fundamentally requires the consideration of suggested reforms to insolvency frameworks and better infrastructure for banks to manage non-performing loans.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
L25 : Industrial Organization→Firm Objectives, Organization, and Behavior→Firm Performance: Size, Diversification, and Scope
- 26 May 2020
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2020Details
- Abstract
- As awareness of the environmental, social and economic risks from disorderly climate change has grown, so has awareness of the need for businesses to accelerate their decarbonisation. Banks need to be prepared for changes in loan performance should financial losses result from abrupt shifts in policies, technologies or consumer sentiment in response to the risks posed by climate change. While credit ratings could in principle capture such risks, in practice rating agencies have only just begun incorporating risks arising from an abrupt transition to a low-carbon economy.
- 20 November 2019
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2019Details
- Abstract
- This special feature discusses several ways in which the measurement of banks’ systemic footprint can be complemented with new indicators. The international approach is largely mechanical, but is intended to be complemented by expert judgement. The proposed additional systemic footprint measures may help macroprudential authorities in exercising that judgement. Using loan-level data matched with individual corporate balance sheet information allows macroprudential authorities to gain a better understanding of how a bank’s failure may affect employment and economic activity. Similar data, used in a model of network contagion, help assess the impact of a bank’s failure on the rest of the system. While the measures proposed in this special feature are not embedded in O-SII or G-SII scores, some evidence suggests that the concepts discussed have informed decisions of macroprudential authorities.