Even outside those special conditions, it is somewhat doubtful that monetary policy can remain effective just by going back to the traditional approach of very small central bank balance sheets and the targeting of overnight money market rates, for a number of reasons. First, the importance of banks in funding non-financial firms has declined everywhere, including in the euro area.
There has been a dramatic change, as non-bank financing sources have become much more important since the onset of the financial crisis. Total assets of investment funds in percentage of total bank assets increased from 16% in 2007 to 44% last year.