When the tide goes out: The Effect of QE on the Structure of the Financial System

Wednesday, 25th of March 2026, 10.30 am - 12 pm: Ciaran Rogers (HEC)

"When the tide goes out: The Effect of QE on the Structure of the Financial System"

Abstract

This paper shows that the prolonged period of low long-term interest rates fundamentally reshaped the European financial system by compressing the life-insurance sector—the main private holder of long-dated sovereign debt. Life insurers depend on high long- term yields to offer attractive guaranteed-return savings products to households. Using newly assembled supervisory data from EIOPA combined with flow-of-funds statistics, we show that the compression of term premia under quantitative easing (QE) reduced household inflows into life insurers by nearly €2 trillion between 2015 and 2022, leading to a sharp contraction in their bond holdings. Instrumenting the term premium with high-frequency monetary policy shocks, we find that insurers’ inflows respond strongly to long-term rates, particularly among those most exposed to guaranteed-rate products. Because insurers invest roughly €0.70 in bonds for every €1 of inflows, this liability-side channel accounts for the bulk of their bond demand. The effects during QT were not symmetric: rising rates triggered widespread policy surrenders, turning insurers into net sellers of government bonds. Although inflows have begun to recover as yields normalized, the rebound remains limited. By compressing long-term yields, QE indirectly reshaped the investor base for sovereign debt—leaving bond markets more reliant on central bank demand and less anchored by private long-term investors.