Big ECB balance sheet is a source of risk not stability

Jens Weidmann and Jörg Krämer in this OMFIF piece:

The European Central Bank’s consolidated balance sheet is six times larger than before the 2007-08 financial crisis. Nevertheless, we are witnessing calls for euro area central banks to maintain large balance sheets, with considerable excess liquidity in banking markets, and not completely wind down their large-scale holdings of government and corporate bonds.

Crisis measures would then become permanent. Banks, corporates and sovereigns would be – at least partially – shielded from the salutary discipline of market pressures. Moreover, such a policy could endanger the ECB’s independence. This confirms the concerns of those who warned at the start of the bond-buying programmes that they would be risky and difficult to exit.