Monetary Policy, macroprudential Policy, and Banking Stability: Evidence from the Euro Area
AbstractWe analyze the impact on lending standards of monetary policy rates and macroprudential policy before the 2008 crisis, and of monetary rates and long-term public liquidity during the crisis. Exploiting the euro-area institutional setting for monetary and prudential policy and using the Bank Lending Survey, we find robust evidence that low monetary policy interest rates soften lending conditions unrelated to borrowers’ risk in the period prior to the crisis, and some suggestive evidence of excessive risk-taking due to low interest rates for mortgage loans. Moreover, the impact of low monetary policy rates on the softening of standards is reduced by more stringent prudential policy on either bank capital or loan-to-value ratio. After the start of the 2008 crisis, we find that low monetary rates soften lending conditions that were tightened because of bank capital and liquidity constraints, especially for business loans. Importantly, this softening effect is stronger for banks that borrow more long-term liquidity from the Eurosystem. Therefore, the results suggest that monetary policy rates and public provision of long-term liquidity complement each other in reducing a credit crunch for firms.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by International Journal of Central Banking in its journal International Journal of Central Banking.
Volume (Year): 9 (2013)
Issue (Month): 1 (March)
Other versions of this item:
- Maddaloni, Angela & Peydró, José-Luis, 2013. "Monetary policy, macroprudential policy and banking stability: evidence from the euro area," Working Paper Series 1560, European Central Bank.
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
- Fabian Valencia, 2011. "Monetary Policy, Bank Leverage, and Financial Stability," IMF Working Papers 11/244, International Monetary Fund.
- Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
- Lown, Cara & Morgan, Donald P., 2006.
"The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 38(6), pages 1575-1597, September.
- Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
- Bengt Holmström & Jean Tirole, 2011.
"Inside and Outside Liquidity,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262015781, June.
- John Taylor, 2007.
"Housing and Monetary Policy,"
07-003, Stanford Institute for Economic Policy Research.
- Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
- Maddaloni, Angela & Peydró, José-Luis, 2010.
"Bank risk-taking, securitization, supervision and low interest rates: Evidence from the euro area and the U.S. lending standards,"
Working Paper Series
1248, European Central Bank.
- Angela Maddaloni, 2011. "Bank Risk-taking, Securitization, Supervision, and Low Interest Rates: Evidence from the Euro-area and the U.S. Lending Standards," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2121-2165.
- Jesper Berg & Annalisa Ferrando & Gabe de Bondt & Silvia Scopel, 2005. "The bank lending survey for the euro area," Occasional Paper Series 23, European Central Bank.
- Douglas W. Diamond & Raghuram G. Rajan, 2012.
"Illiquid Banks, Financial Stability, and Interest Rate Policy,"
Journal of Political Economy,
University of Chicago Press, vol. 120(3), pages 552 - 591.
- Douglas W. Diamond & Raghuram Rajan, 2011. "Illiquid Banks, Financial Stability, and Interest Rate Policy," NBER Working Papers 16994, National Bureau of Economic Research, Inc.
- Laeven, Luc & Levine, Ross, 2009.
"Bank governance, regulation and risk taking,"
Journal of Financial Economics,
Elsevier, vol. 93(2), pages 259-275, August.
- Douglas W. Diamond & Raghuram G. Rajan, 2003.
"Money in a Theory of Banking,"
NBER Working Papers
10070, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, May.
- Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-55, January.
- Raghuram G. Rajan, 2005.
"Has Financial Development Made the World Riskier?,"
- Gabriel Jimenez & Steven Ongena & Jose-Luis Peydro & Jesus Saurina, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," American Economic Review, American Economic Association, vol. 102(5), pages 2301-26, August.
- Barth,James R. & Caprio,Gerard & Levine,Ross, 2006.
"Rethinking Bank Regulation,"
Cambridge University Press, number 9780521855761, November.
- Claudio Borio & Haibin Zhu, 2008.
"Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?,"
BIS Working Papers
268, Bank for International Settlements.
- Borio, Claudio & Zhu, Haibin, 2012. "Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?," Journal of Financial Stability, Elsevier, vol. 8(4), pages 236-251.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Ciccarelli, Matteo & Peydró, José-Luis & Maddaloni, Angela, 2010. "Trusting the bankers: a new look at the credit channel of monetary policy," Working Paper Series 1228, European Central Bank.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Martin Ruckes, 2004. "Bank Competition and Credit Standards," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1073-1102.
- Dimitri O. Ledenyov & Viktor O. Ledenyov, 2013. "On the accurate characterization of business cycles in nonlinear dynamic financial and economic systems," Papers 1304.4807, arXiv.org.
- Sylvia Kaufmann & Johann Scharler, 2013. "Bank-Lending Standards, Loan Growth and the Business Cycle in the Euro Area," Working Papers 2013-34, Faculty of Economics and Statistics, University of Innsbruck.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.