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In the literature, the question of central banks' responsibility for triggering crises is raised when sustainable low interest rates lead to excessive banks' risk exposures. However, such portfolio choices mainly depend on the various returns of assets and on the official interest rate, taking into account that the bank lending channel is affected by the bank capital channel. On the basis of a simple theoretical model including a solvency ratio, we show that during recessions a credit rationing is observed together with a flight to quality; during expansions monetary policy can induce both a fall in credit activity and an increase in financial instability. Then, regulatory capital arbitrages appear and still weaken productive loans. Conclusions can be drawn in terms of prudential policy, as the central bank may be powerless face to banking strategies if the regulatory framework is procyclical.

The 2008 and 2011 crises have durably affected the conditions of monetary policy transmission, particularly in the euro area. However, it is generally considered that the European Central Bank’s (ECB) monetary policy truly became unconventional only at a late stage. Our contribution is threefold. We first show that the notion of “conventional” monetary policy, which is the reference of this assessment, is a recent theoretical construction. Secondly, the mandate of the ECB, which is its institutional expression, may raise specific difficulties in managing major financial crises, particularly with regards to the forward guidance of expectations and the commitment to an accommodative policy. Finally, the resulting policies have, at this stage, paradoxically achieved acceptable levels of macroeconomic and overall financial stability, but failed to restore a private funding supply to the banking sector enabling it to play its normal role in financing economic activity.

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