The Effect of Unconventional Monetary Policy on Systemic Risks in the EU Countries

After the global financial crisis of 2008-2009, unconventional monetary policy (zero and negative interest rates, quantitative and credit easing, control of the yield curve, and others) began to be actively used by central banks of developed countries to minimize deflationary risks. During the crisis caused by the COVID-19 pandemic, regulators in several developing countries also called on these measures to support the functioning of the transmission mechanism of monetary policy. At the same time, unconventional monetary policy not only contributes to the stabilization of financial markets but can also increase systemic risks. It objectively stimulates financial institutions to increase debt, which enhances their vulnerability to both additional external shocks and a possible normalization of the central bank's policy. Vector autoregressive models were used to assess the impact of the ECB's unconventional monetary policy on systemic risks in the EU countries. The impulse response functions obtained on their basis indicate that the expansion of unconventional monetary policy measures statistically significantly increases systemic risks in the short term (within a month after the decision of the central bank), but subsequently this effect disappears. A short-term increase in systemic risks can be explained by the fact that market participants perceive additional measures of unconventional monetary policy as a sign of significant problems in the economy, and therefore they are selling financial assets. However, further the stabilization effect prevails: the provision of liquidity reduces the risks of a collapse of the financial system, stimulates the growth of asset prices, which puts downward pressure on systemic risks. In addition, the tightening of financial regulation in the post-crisis period should be noted: increased capital and liquidity requirements support the confidence of market participants in the stability of financial institutions, and therefore there is no significant outflow of funds from commercial banks and the sale of assets related to them.