ECB working paper finds fiscal consolidation improves bank balance sheets


A new working paper from the European Central Bank has found, using a "very large data set of individual banks' balance sheets", that standard capital adequacy ratios such as the Tier I ratio tend to improve following episodes of fiscal consolidation.

The paper analyses the effects of fiscal consolidations on the portfolio choices of banks and on banking sector stability. The authors, Jacopo Cimadomo, Sebastian Hauptmeier and Tom Zimmermann, see two channels through which fiscal adjustments

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