Lending Channel of Monetary Policy in Russia: Microeconomic Estimates for Retail and Corporative Segments of Credit Market

This paper compares the effeciency of the lending channel of monetary policy in the two segments of credit market in Russia, retail and corporative, using monthly data on banks' balance sheets. Our regression analysis shows that REPO weekly rate negatively affects the banks' activities in both segments of credit market; moreover, this effect is two times stronger in the retail segment than in the corporative one. The lending channel is weakened by banks' capital and reserves in central bank (for retail segment only) and is surprisingly amplified by the banks' investments in corporative bonds (for both segments). From the regulator's perspective, our estimates suggest that inducing the development of corporate bond market makes sense for the Bank of Russia because this may increase rather than decrease the efficiency of lending channel. Despite the limited abilities of the Bank of Russia to affect the credit decisions of larger banks, any policy measure that will be accompanied with an easing of capital requirements will be compensated by increased efficiency of the lending channel in the corporate segment of credit market. From the standpoint of countercyclical capital buffers this automatically implies that the efficiency of lending channel is tending to increase during the periods of macroeconomic recessions and, vice versa, to decrease when the economy enjoys growth.