We analyse the impact of standard and non-standard monetary policy measures on bank
profitability. For empirical identification, the analysis focuses on the euro area, thereby exploiting
substantial bank and country heterogeneity within a monetary union where the central bank has
implemented a broad range of unconventional policies, including quantitative easing and negative
interest rates. We use both proprietary and commercial data on individual bank balance sheets and
financial market prices. Our results show that monetary policy easing – a decrease in short-term
interest rates and/or a flattening of the yield curve – is not associated with lower bank profits once
we control for the endogeneity of the policy measures to expected macroeconomic and financial
conditions. Importantly, our analysis indicates that the main components of bank profitability are
asymmetrically affected by accommodative monetary conditions, with a positive impact on loan
loss provisions and non-interest income largely offsetting the negative one on net interest income.
We also find that a protracted period of low interest rates might have a negative effect on profits
that, however, only materialises after a long period of time and tends to be counterbalanced by
improved macroeconomic conditions. In addition, while more operationally efficient banks benefit
more from monetary policy easing, banks engaging more extensively in maturity transformation
experience a higher increase in profitability after a steepening of the yield curve. Finally, we assess
the impact of unconventional monetary policies on market-based measures of expected bank
profitability and credit risk, by employing an event study analysis using high frequency data, and
find that accommodative monetary policies tend to increase bank stock returns and reduce credit
risk.