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Bank risk and monetary policy

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  • Altunbas, Yener
  • Gambacorta, Leonardo
  • Marqués-Ibáñez, David

Abstract

We find evidence of a bank lending channel for the euro area operating via bank risk. Financial innovation and the new ways to transfer credit risk have tended to diminish the informational content of standard bank balance-sheet indicators. We show that bank risk conditions, as perceived by financial market investors, need to be considered, together with the other indicators (i.e. size, liquidity and capitalization), traditionally used in the bank lending channel literature to assess a bank’s ability and willingness to supply new loans. Using a large sample of European banks, we find that banks characterized by lower expected default frequency are able to offer a larger amount of credit and to better insulate their loan supply from monetary policy changes. JEL Classification: E44, E55

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1075.

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Date of creation: Jul 2009
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Handle: RePEc:ecb:ecbwps:20091075

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Keywords: bank; bank lending channel; monetary policy; risk;

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