* * * Accompanying slides Central bank balance sheets have received much attention in recent years, mostly reflecting their considerable expansion on the back of large-scale asset purchases and long-term lending operations. 1 In my remarks this evening I would like to share some more general thoughts on the role of the central bank’s balance sheet in the economy.
Apart from supervision and resolution, we have to look at bank regulation. The current regulatory framework, too, promotes this nexus between bank and sovereigns because it encourages banks to invest in sovereign debt. This reinforces the “doom loop” between the sovereign sector and the banking system. Should doubts about the sustainability of government debt arise, the national banking sector will also be negatively affected.