Did ECB's Pledge to Do 'Whatever it Takes' Come With Unanticipated Side Effects? An Event Study Assessing the Impact of ECB's Asset Purchase Programs on Bank Equity Valuation and Credit Risk.

Nina Marquardt & Jacob Lykke Thomsen

Student thesis: Master thesis


The past decade has marked a new era of unconventional monetary policy measures and posed a challenging business environment for the banking sector. Especially the asset purchase programs (APPs) may carry negative side effects through an implied flatter yield curve and compressed loan-deposit margins. We therefore assess the impact of the European Central Bank's APPs on the euro area banking sector from 2009 to 2018. More specifically, we apply a high-frequency event study to estimate the immediate effect of APP-related announcements on expected bank profitability and credit risk, as measured by stock returns and changes in CDS spreads respectively. Furthermore, we test for differential effects across banks and purchase programs and investigate potential spillovers to Nordic banks. We show that the APP announcements were successful in boosting stock prices and reducing CDS spreads across the Eurozone. On average, euro area banks experience a 1 percent greater stock return and a 6.4 bps larger decline in CDS spreads on announcement days. The stock return of banks from distressed euro area countries is almost twice as large as compared to banks from non-distressed countries, while their CDS spreads decrease by more than twice as much. Also larger and more constrained banks appear more sensitive. We find that especially announcements related to the Asset-Backed Securities Purchase Programme and the Corporate Sector Purchase Programme had large effects across the euro area. Also the Securities Markets Programme had substantial impact, but only for banks from distressed countries. Finally, we only find evidence of limited spillovers to Nordic banks.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
Publication date2019
Number of pages140
SupervisorsPeter Feldh├╝tter