models used by the eurosystem for policy simulations, a bayesian vector autoregression model ( rostagno, m., altavilla, c., carboni, g., lemke, w., motto, r., and saint guilhem, a. ( 2021 ), “ combining negative rates, forward guidance and asset purchases : identification and impacts of the ecb ’ s unconventional policies ”, working paper series, no 2564, ecb ), the nawm - ii model, and the ecb - base model. however, these calculations are based on elasticities of financial conditions to policy impulses that are estimated based on data observed in non - stressed market conditions. this implies, in turn, that the impact estimates are typically moderate in size. it follows that this first approach to quantifying the effects of our policies is likely to underestimate by a wide margin their true effect under the macrofinancial conditions generated by the extraordinary pandemic shock. this approach likely also understates the overall impact of monetary policy during the pandemic, since it does not take into account that fiscal policy would likely have been less countercyclical in the absence of favourable financing conditions. more generally, in the macroeconomic models that central banks typically use for simulation and policy analysis, it is challenging to reflect the role of monetary policy measures in providing a credible backstop against adverse tail risks, such as an arrest in the flow of credit to the economy and acute financial instability. a more realistic assumption for constructing counterfactual financial conditions is to recognise that, in the event of policy inaction, financial markets – which were already highly destabilised – would have gone into a tailspin, sending the economy into a meltdown. building on recent advances in the macro - econometrics of estimating the impact of financial tail risks, preliminary results produced by ecb staff indicate that the ecb ’ s removal of the financial tail risk associated with the pandemic ensured a degree of support to growth that is several times larger than the impact derived by the more limited calculation shown in chart 13. in particular, as chart 14 shows, econometric analysis that quantifies the impact of a tightening in euro area financial conditions – not only on the mean of output growth but also on different parts of its empirical distribution through quantile regression – shows a negative impact on activity that is several times larger when the

cds contracts is with five - year maturities, although participants are trying to expand market depth at longer terms. there are also efforts to push demand beyond investment - grade corporate names, for example to high - yield and middle - market sectors. a key question - how much risk is being transferred? - has been difficult to answer due to the participation in the market of many types of regulated and unregulated investors and firms as well as the fact that participants simply reverse or close out one exposure by entering into an additional and offsetting one, as they do with other types of swaps. to be sure, notional amounts substantially overstate the level of risk transfer, but by most accounts, market participants seem to agree that the volume of risk transferred has been material. anecdotally, some of the largest banks indicate they hedge about 15 percent of their investment - grade corporate credit. standard and poor ’ s estimates the banking system globally has used credit derivatives to transfer the risk associated with some $ 300 billion of exposures. but s & p acknowledges that this estimate likely overstates the true level of risk transferred because cds are almost exclusively written on low - risk, investment - grade credits, and because banks issuing cdos typically retain the riskier tranches. even so, it seems to me that such risk management practices are important in governing credit risk in large banking organizations and, in many respects, reducing systemic risk, as well. despite the common practice by banks that issue cdos to retain much or all of the first - loss or “ expected - loss ” tranche, such banks have at least reduced their previous, full credit exposure. moreover, the sale and purchase of cds also allow banks to manage concentrations and to further diversify their portfolios. in the event of highly unexpected defaults among investment - grade firms, a hedged bank ’ s losses will be reduced. the experience with credit derivatives in the enron, world com, and parmalat events, indicate that these new risk products can work effectively. one aspect that we, as bank supervisors, find encouraging about the growth of credit risk transfer activity is the diversification benefit it provides - and its potential for greater economic efficiency. certainly, not all of the risk transferred by banks has left the banking sector. s & p estimates that roughly one - half of this risk remains in the banking sector. the insurance sector, including reinsurance firms, has been a major participant among nonbank firms. among banks, the