Digital euro
The Eurosystem is preparing for the potential issuance of a digital euro to complement physical cash.
PUBLICATION
26 May 2026
Private credit: a risk to financial stability?
Private credit markets are under scrutiny as concerns grow around credit quality and concentrated exposures to the software sector. Direct risks to the euro area are limited, but non-bank institutions could face meaningful losses if markets also turn.
Read our Financial Stability Review
ECONOMIC BULLETIN
15 May 2026
ECB publishes Economic Bulletin
This publication presents the economic and monetary information which forms the basis for the Governing Council’s policy decisions. It is released eight times a year, two weeks after each monetary policy meeting.
Read the new Economic Bulletin
THE ECB BLOG
26 May 2026
Iran war shapes firms’ expectations
The economic shock caused by the war between the United States and Iran has quickly fed into euro area firms’ expectations. Daily responses to an ECB survey show an immediate increase in expected input costs, selling prices and short-term inflation.
Read The ECB Blog- 26 May 2026
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 26 May 2026
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 22 May 2026
- GOVERNING COUNCIL DECISIONS - OTHER DECISIONSEnglishOTHER LANGUAGES (23) +
- 21 May 2026
- BALANCE OF PAYMENTS (MONTHLY)
- 20 May 2026
- PRESS RELEASE
- 19 May 2026
- WEEKLY FINANCIAL STATEMENTEnglishOTHER LANGUAGES (22) +Annexes
- 19 May 2026
- WEEKLY FINANCIAL STATEMENT - COMMENTARY
- 22 May 2026
- Keynote speech by Philip R. Lane, Member of the Executive Board of the ECB, at the Asian Monetary Policy Forum
- 21 May 2026
- Slides by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the University of Oxford in Oxford, United Kingdom
- 13 May 2026
- Speech by Christine Lagarde, President of the ECB, at the dinner preceding the Charlemagne Prize ceremony in Aachen, Germany
- 13 May 2026
- Dinner remarks by Philip R. Lane, Member of the Executive Board of the ECB, at the Centre for European Reform
- 12 May 2026
- Keynote speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the conference “Financing Europe: a new era of strategic investment”
- 26 May 2026
- Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Shogo Akagawa and Shiori Goso on 19 May 2026
- 26 May 2026
- Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Balázs Korányi and Reinhard Becker on 21 May 2026
- 11 May 2026
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Olaf Storbeck on 7 May 2026
- 3 May 2026
- Interview with Luis de Guindos, Vice-President of the ECB, conducted by Amanda Mars on 30 April 2026
- 22 April 2026
- Interview with Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Eva Smal on 15 April 2026
- 26 May 2026
- The economic shock caused by the war between the United States and Iran has quickly fed into euro area firms’ expectations. Daily responses to an ECB survey show an immediate increase in expected input costs, selling prices and short-term inflation.Details
- JEL Code
- E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
G10 : Financial Economics→General Financial Markets→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 15 May 2026
- Non-bank financial institutions (NBFIs) are on the rise. This blog shows how shifts in their borrowing and investment portfolios constrain financing for euro area firms and affect the transmission of monetary policy.Details
- JEL Code
- E20 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→General
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
- 6 May 2026
- Digitalisation is reshaping how banks pass on monetary policy. Compared with their branch‑based peers, digital banks are faster at adjusting deposit pricing for policy changes, but slower at updating their loan pricing.Details
- JEL Code
- E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
G20 : Financial Economics→Financial Institutions and Services→General
- 21 April 2026
- Artificial intelligence (AI) can help track inflation risks in real time. A new ECB model based on machine learning informs experts how likely it is that inflation will be much higher or much lower than they expect.Details
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
- 13 April 2026
- During the latest tightening episode, interest rate hikes were especially effective. This ECB Blog finds a strong policy transmission to inflation during 2022 and 2023, a forceful response to supply-driven shocks and a low “sacrifice ratio”.Details
- JEL Code
- E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 26 May 2026
- WORKING PAPER SERIES - No. 3237Details
- Abstract
- This paper studies the employment effects of carbon pricing under the European Union’s Emissions Trading System (EU-ETS). I refer to standard methods from the literature to define and measure the environmental properties of jobs along two dimensions: how “green” a job is, and how polluting it is. I then leverage a series of shocks to EU-ETS prices to estimate their dynamic impacts on employment. The panel local projections estimates reveal that an exogenous 1% increase in EU-ETS prices leads to a roughly 0.2% decline in employment after one and a half years. Impacts on employment in more polluting jobs are estimated to be even stronger, while impacts on employment in greener jobs are also estimated to be negative, albeit less pronounced. Two factors play an important role in shaping these responses: the allocation of free emissions allowances and the stringency of employment protection legislation. When relatively fewer emissions are covered by free allowances, the negative employment effects of EU-ETS price shocks are stronger. Similarly, when employment protection is greater, the estimated impact is more muted. Average weekly hours of work is found to be an additional margin along which EU-ETS prices impact employment yet the estimated effects are relatively small and short-lived. Together, these findings underscore the economic consequences of carbon pricing, offering valuable insights for policymakers balancing climate objectives with labour market considerations.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J21 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Force and Employment, Size, and Structure
H23 : Public Economics→Taxation, Subsidies, and Revenue→Externalities, Redistributive Effects, Environmental Taxes and Subsidies
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
- 26 May 2026
- WORKING PAPER SERIES - No. 3236Details
- Abstract
- This paper develops a sequential deep learning algorithm for solving dynamic stochastic general equilibrium (DSGE) models. The algorithm trains a deep neural network to approximate the model’s policy functions across four progressive phases: steady-state anchoring, exploration around the steady state, simulation on the ergodic set, and Monte Carlo integration of stochastic expectations. Training requires no pre-computed starting approximation: the network initialises from the analytically known steady state and constructs its training data endogenously, resolving the circularity between the training distribution and the solution. A systematic comparison across network architectures shows that shallow, moderately wide networks with an intermediate steady-state penalty consistently deliver the best accuracy at the lowest computational cost. We apply the method to a two-country open-economy model and show that large tariff shocks generate non-linearities that local methods cannot reproduce even at higher orders.
- JEL Code
- C45 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Neural Networks and Related Topics
C63 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computational Techniques, Simulation Modeling
C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical
F13 : International Economics→Trade→Trade Policy, International Trade Organizations
- 26 May 2026
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2026Details
- Abstract
- Recent stress in parts of the US private credit market − including concerns about exposures in the software sector and redemption pressure in semi-liquid vehicles − has led to renewed focus on possible financial stability risks stemming from private credit and the potential relevance of such risks for the euro area. This special feature looks at the exposure of the euro area financial system to private credit. Using available commercial, public and proprietary data, it finds that euro area financial institutions appear to have limited direct exposure to private credit. This makes it unlikely that private credit in isolation could be a source of systemic financial instability at present. However, insurance corporations and pension funds in particular could, in an adverse scenario, face more material second-round revaluation losses from broader spillovers to leveraged loans, high-yield bonds and equities. Private credit could promote long-term growth by channelling funds from long-term investors to innovative firms, thereby supporting the objectives of the EU’s savings and investments union. The market should nonetheless be monitored closely, especially in view of worsening credit quality, possible expansion into retail-oriented structures and a potential role of private credit in AI-related financing. Reducing private credit’s opacity, addressing data gaps and working towards a harmonised definition of private credit at a global level would avoid a potential underestimation of direct exposures and enable risk to be assessed more completely.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
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
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
- 25 May 2026
- SURVEY OF MONETARY ANALYSTS
- 22 May 2026
- EURO AREA BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATISTICS - QUALITY REPORTAnnexes
- 22 May 2026
- EURO AREA BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATISTICS - QUALITY REPORT
- 21 May 2026
- RESEARCH BULLETIN - No. 143Details
- Abstract
- Artificial intelligence (AI) is rapidly transforming financial decision-making. To explore the implications for financial stability we ran simulation-based experiments on two different AI architectures. We found that Q-learning algorithms, a form of reinforcement learning, achieved a high degree of coordination, but were prone to bank run-like dynamics. In contrast, large language models , which rely on contextual reasoning, were less prone to such runs but generated heterogeneous and unpredictable behaviour. This suggests that AI architecture is itself a source of financial instability: algorithms operating in the same environment, pursuing the same goals, yield fundamentally different outcomes for financial stability
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
C63 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computational Techniques, Simulation Modeling
- 20 May 2026
- OTHER PUBLICATIONAnnexes
- 20 May 2026
- SURVEY ON CREDIT TERMS AND CONDITIONS IN EURO-DENOMINATED SECURITIES FINANCING AND OTC DERIVATIVES MARKETS
- 19 May 2026
- WORKING PAPER SERIES - No. 3235Details
- Abstract
- This paper is the first to simultaneously examine firms’ market-based and bank-based external finance premia and investigate the behavior of corporate bond markets in the United States and the euro area, with a focus on country- and state-level heterogeneity in monetary unions. Using a unique micro-level dataset, we show that market finance premia, measured with corporate bond spreads, are remarkably similar in both the euro area and the US in terms of how little they depend on the issuer’s state or country of origin. In neither monetary union is the transmission of monetary policy to corporate bond rates differentiated as a function of the state or country of issuer. Unconditionally, the state or country of origin of the bond issuers explains very little of the variance among corporate bond spreads, in stark contrast to bank loan spreads that are determined at the country level for the same sample of bond-issuing firms. The euro area corporate bond market is as integrated as the US one, contrary to conventional beliefs. The marked difference between country influences on bank loan and corporate debt spreads is not due to selection effects in bond issuing firms but owes directly to the nature of market finance.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors - Network
- Challenges for Monetary Policy Transmission in a Changing World Network (ChaMP)
- 19 May 2026
- WORKING PAPER SERIES - No. 3234Details
- Abstract
- We study how private equity (PE) buyouts propagate through supply chains using unique firm-to-firm transactions data from Belgium. In normal times, suppliers of PE-backed firms outperform their peers by 5%–10% in employment and sales growth, primarily due to increased input demand from PE-backed customers rather than knowledge spillovers or other mechanisms. In economic downturns, however, this outperformance is attenuated and suppliers compress markups by around 8% as PE investors intensify bargaining pressure and reconfigure supply chains to extract cost savings. Beyond the direct effects on suppliers, we show that as PE-backed firms absorb supplier capacity, they crowd out competitors that rely on the same suppliers. Overall, our findings underscore that supply chains are central to how PE investors create and redistribute value.
- JEL Code
- D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
D24 : Microeconomics→Production and Organizations→Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
G34 : Financial Economics→Corporate Finance and Governance→Mergers, Acquisitions, Restructuring, Corporate Governance
- 18 May 2026
- OCCASIONAL PAPER SERIES - No. 388Details
- Abstract
- The European energy market remains heavily reliant on imported fossil fuels and fragmented across Member States. This leaves the EU exposed to high and volatile energy prices, posing risks to its growth outlook and its international competitiveness. As the EU advances its energy security and climate neutrality objectives, the role of electricity and renewable energy is set to increase at the expense of fossil fuels. This paper argues that achieving a genuine European Energy Union would help to reach these goals and identifies five key policy priorities to support this process: strengthening cross-border infrastructure; mobilising innovative green finance; investing in tools to support flexibility and matching of supply and demand; improving the efficiency and harmonisation of energy taxation; and establishing a coherent industrial policy for clean tech.
- JEL Code
- Q40 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→General
Q41 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Demand and Supply, Prices
Q48 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Government Policy
O25 : Economic Development, Technological Change, and Growth→Development Planning and Policy→Industrial Policy
F15 : International Economics→Trade→Economic Integration
- 15 May 2026
- ECONOMIC BULLETIN
- 15 May 2026
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 3, 2026Details
- Abstract
- Tariffs have re-emerged as a key policy tool amid rising protectionism, renewed industrial policy activism and growing geopolitical fragmentation. This article analyses the conditions under which tariffs can encourage new greenfield foreign direct investment (FDI) projects, with a focus on the manufacturing sector. The results indicate that tariffs can encourage “tariff-jumping” greenfield FDI projects aimed at serving local markets. However, high-intensity tariff increases tend to deter new greenfield manufacturing FDI in sectors that are deeply integrated into global value chains and that rely heavily on imported intermediate inputs, such as manufacturing. A case study of US inward greenfield FDI following the 2025 US tariff announcements finds little evidence of a tariff-driven surge in US inward investment or of a decline in US outward investment. From a euro area perspective, the risk that increased outward FDI could have a dampening effect on domestic investment in the euro area is therefore limited. However, increased outward FDI may further weaken exports to the United States in addition to the negative impact of the US tariffs.
- JEL Code
- F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
F68 : International Economics→Economic Impacts of Globalization→Policy
- 15 May 2026
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 3, 2026Details
- Abstract
- The European Central Bank (ECB) defines its price stability target in terms of the HICP, the official measure of consumer price inflation in the euro area. Several changes have been implemented in the compilation of the HICP as of the January 2026 data release. Most importantly, the European Classification of Individual Consumption according to Purpose (ECOICOP) version 2 has been introduced for consumer goods and services. This box describes the main features of the new classification and outlines its impact on the HICP. While the overall HICP inflation rate is not affected by the changes, the reclassification of products becomes visible at a more disaggregate level when historical data are recompiled using ECOICOP version 2. The update also has implications for the compilation of commonly used measures of underlying inflation. In addition to the reclassification, the HICP has been expanded to cover services related to games of chance, and the euro area HICP aggregate now includes Bulgaria following its entry into the euro area on 1 January 2026.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 15 May 2026
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 3, 2026Details
- Abstract
- This box examines developments and drivers of dispersion in real GDP growth across euro area countries, it documents cross-country patterns and explores the role of sectoral, demographic and labour market trends. Dispersion in euro area real GDP growth has declined recently and is relatively low by historical standards. This has coincided with convergence in real GDP per capita. Cross-country growth dispersion has previously spiked in times of crisis, typically emerging in specific sectors. However, recent cross-country growth dispersion has been less concentrated in specific sectors and is more closely related to demographic and labour market trends than to differences in productivity growth.
- JEL Code
- E23 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Production
E27 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Forecasting and Simulation: Models and Applications
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 15 May 2026
- ECONOMIC BULLETIN - BOXAssessing cross-border integration of equity markets in the euro area: evidence from a gravity modelEconomic Bulletin Issue 3, 2026Details
- Abstract
- Euro area financial markets hold significant untapped potential: deeper cross-border integration would improve the allocation of savings, lower the cost of capital and strengthen capacity to finance investment and innovation. To assess how the integration of euro area equity markets has evolved over time, this box applies a structural gravity model, the workhorse of international trade analysis, to bilateral euro area equity holdings. The results show that intra-euro area frictions have declined only marginally since 2014, while barriers vis-à-vis the United States have fallen more than twice as fast – a gap that defines the gains that targeted reforms under the savings and investments union could help unlock.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
O16 : Economic Development, Technological Change, and Growth→Economic Development→Financial Markets, Saving and Capital Investment, Corporate Finance and Governance
- 13 May 2026
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 3, 2026Details
- Abstract
- This article examines the drivers and macroeconomic implications of the recent significant expansion of the euro area labour force, which reached a record high of 173 million people in 2025. The increase reflects rising labour force participation across demographic groups and sustained net migration, with older, more educated and foreign workers accounting for much of the growth. These compositional shifts, particularly the larger share of older workers, have exerted downward pressure on the aggregate unemployment rate, while reducing labour market dynamism and contributing to a declining trend in average hours worked. Labour market policies aimed at mitigating the longer-term drag on potential output and productivity from population ageing are essential.
- JEL Code
- J11 : Labor and Demographic Economics→Demographic Economics→Demographic Trends, Macroeconomic Effects, and Forecasts
J21 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Force and Employment, Size, and Structure
J61 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Geographic Labor Mobility, Immigrant Workers
- 13 May 2026
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 3, 2026Details
- Abstract
- This box shows that older workers have contributed significantly to euro area employment growth in recent years, largely because they are retiring later. The share of retired individuals in the total population shows little sensitivity to the economic cycle, but has decreased steadily over the past two decades, with this decline having shifted more towards older age groups. The share of retirees is still falling among individuals in their early to mid-60s and appears likely to also do so among older age groups. At the same time, statutory retirement ages do not seem to have been the main contributing factor to the observed increases in average retirement ages. Looking ahead, the evidence suggests that overall retirement ages will continue to increase, in line with the projections presented in the European Commission’s 2024 Ageing Report.
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J11 : Labor and Demographic Economics→Demographic Economics→Demographic Trends, Macroeconomic Effects, and Forecasts
J21 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Force and Employment, Size, and Structure
J26 : Labor and Demographic Economics→Demand and Supply of Labor→Retirement, Retirement Policies
- 13 May 2026
- WORKING PAPER SERIES - No. 3233Details
- Abstract
- We empirically analyse the role of judgement in assigning overall scores by the euro area supervisors as part of the yearly Supervisory Review and Evaluation Process (SREP), which evaluates banks’ risks and sets supervisory actions. We also analyse its role in shaping the drivers of the Pillar 2 capital requirement (P2R) that banks must fulfil. We find that supervisors actively adjust the weight of the components of the overall score to reflect qualitative information, thereby smoothing fluctuations in the final assessment. The analysis reveals a common supervisory judgement channel, which could reflect shared priorities and concerns, such as systemic vulnerabilities or macroeconomic conditions. We also show that certain risks, such as credit risk, can play a decisive role in the overall assessment of a bank’s viability. These findings underpin the critical role of judgement in adapting supervisory frameworks to evolving risks and systemic conditions, providing flexibility at both the individual and system-wide levels.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 13 May 2026
- WORKING PAPER SERIES - No. 3232Details
- Abstract
- We examine whether banks incorporate firm-level biodiversity risk into their lending decisions. Using a large sample of syndicated loans matched to firm-level biodiversity risk measures, we document that borrowers with higher biodiversity risk face significantly higher loan spreads. Evidence on loan volumes is weaker, suggesting that banks primarily adjust along the pricing margin rather than restricting credit supply. To capture biodiversity risk exposure, we develop a novel text-based indicator derived from corporate disclosures that incorporates the contextual content of environmental risk. To strengthen identification, we exploit firm-level environmental violations as shocks to environmental credibility. In a stacked difference-in-differences framework, we show that such violations increase the sensitivity of loan pricing to biodiversity risk. Overall, our findings provide evidence that biodiversity risk is a financially material dimension of environmental risk in credit markets.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Q51 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Valuation of Environmental Effects
Q57 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Ecological Economics: Ecosystem Services, Biodiversity Conservation, Bioeconomics, Industrial Ecology - Network
- ECB Lamfalussy Fellowship Programme
- 12 May 2026
- WORKING PAPER SERIES - No. 3231Details
- Abstract
- This paper studies the impact on cashflows and financial decisions of firms affected by wildfires, focusing on the wildfires that occurred in Portugal in 2017. Using establishment-level data from the hotel industry combined with geospatial information on wildfire proximity and land use, we employ a difference-in-differences approach to study both directly and indirectly affected firms. Our findings reveal that firms with direct damages from the wildfires recorded, on average, a 43% drop in revenues in 2018, while indirectly affected firms with a high share of burned area within a 1 km radius suffered a 24% drop. These cashflow shocks triggered distinct financial responses: directly affected hotels increased their reliance on long-term debt and coupled tangible asset investments with additional cash reserves, whereas indirectly affected firms reduced tangible investments and cash holdings. This divergence aligns with both real-options and reference-dependent risk preferences theories, reflecting the option to wait before investing and the shift in business fundamentals relative to the pre-disaster reference points.
- JEL Code
- G30 : Financial Economics→Corporate Finance and Governance→General
G31 : Financial Economics→Corporate Finance and Governance→Capital Budgeting, Fixed Investment and Inventory Studies, Capacity
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
Interest rates
| Deposit facility | 2.00 % |
| Main refinancing operations (fixed rate) | 2.15 % |
| Marginal lending facility | 2.40 % |
Inflation rate
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| USD | US dollar | 1.1634 | |
| JPY | Japanese yen | 185.22 | |
| GBP | Pound sterling | 0.86375 | |
| CHF | Swiss franc | 0.9136 |
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