A second example of side effects relates to the bank lending channel. Ensuring that the banking sector continues to act as a shock absorber rather than an amplifier remains essential for the smooth transmission of monetary policy. If left unaddressed, procyclical financial intermediation effects could amplify the impact of the pandemic on the economy.
Before the pandemic, the strong and rising demand for credit and an improving economic outlook offset the adverse effects of declining interest rate margins on banks’ earnings and capital positions. The net effect of our measures on banks’ return on assets has so far been clearly positive (see left chart slide 10).