Central Bank Losses and the Shareholder Values of Commercial Credit Institutions

Quantitative Easing (QE) created huge excess reserves of Eurozone credit institutions. When Quantitative Tightening (QT) set in, these reserves had to be remunerated by the European Central Bank (ECB) at the deposit facility rate. Hence, credit institutions presently benefit from large interest incomes on their reserve holdings, reflected by increasing share prices. I study the case of Deutsche Bank Aktiengesellschaft (AG) using a structural vector autoregression (SVAR) framework to identify the root causes of the recent rise in Deutsche Bank share prices. In order to identify the effects of QT on stock prices, each empirical model is estimated on two different samples: One sample which ends in June 2022 when QE was discontinued and a second sample spanning the same time period plus the rather short QT-period July 2022 to September 2023. The stark difference in results suggests that autonomous monetary policy decisions which raised the deposit facility rate since June 2022 have significantly increased the price of Deutsche Bank stocks. Since the interest payments to commercial credit institutions are not offset by revenues from ECB assets purchased during QE, this implies that private wealth of shareholders increased at the expense of central bank profits that would normally contribute to public budgets.