IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/20101233.html
   My bibliography  Save this paper

Bank heterogeneity and monetary policy transmission

Author

Listed:
  • Brissimis, Sophocles N.
  • Delis, Manthos D.

Abstract

Heterogeneity in the response of banks to a change in monetary policy is an important element in the transmission of this policy through banks. This paper examines the role of bank liquidity, capitalization and market power as internal factors influencing banks' reaction in terms of lending and risk-taking to monetary policy impulses. The ultimate impact of a monetary policy change on bank performance is also considered. The empirical analysis, using large panel datasets for the United States and the euro area, elucidates the sources of differences in the response of banks to changes in policy interest rates by disaggregating down to the individual bank level. This is achieved by the use of a Local GMM technique that also enables us to quantify the degree of heterogeneity in the transmission mechanism. It is argued that the extensive heterogeneity in banks' response identifies overlooked consequences of bank behavior and highlights potential monetary sources of the current financial distress. JEL Classification: E44, E52, G21, C14

Suggested Citation

  • Brissimis, Sophocles N. & Delis, Manthos D., 2010. "Bank heterogeneity and monetary policy transmission," Working Paper Series 1233, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20101233
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1233.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," The World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
    2. Douglas W. Diamond & Raghuram G. Rajan, 2006. "Money in a Theory of Banking," American Economic Review, American Economic Association, vol. 96(1), pages 30-53, March.
    3. Giovanni Dell'Ariccia & Robert Marquez, 2006. "Lending Booms and Lending Standards," Journal of Finance, American Finance Association, vol. 61(5), pages 2511-2546, October.
    4. den Haan, Wouter J. & Sumner, Steven W. & Yamashiro, Guy M., 2007. "Bank loan portfolios and the monetary transmission mechanism," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 904-924, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabriel Jiménez & Steven Ongena & José‐Luis Peydró & Jesús Saurina, 2014. "Hazardous Times for Monetary Policy: What Do Twenty‐Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk‐Taking?," Econometrica, Econometric Society, vol. 82(2), pages 463-505, March.
    2. Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2017. "“In the Short Run Blasé, In the Long Run Risqué”," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(3), pages 181-226, August.
    3. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2017. "‘In the Short Run Blasé, in the Long Run Risqué’. On the Effects of Monetary Policy on Bank Credit Risk-Taking in the Short versus Long Run," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 181-226.
    4. Angela Maddaloni & Jose-Luis Peydro, 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.
    5. Lin, Tse-Chun & Liu, Jinyu & Ni, Xiaoran, 2022. "Foreign bank entry deregulation and stock market stability: Evidence from staggered regulatory changes," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 185-207.
    6. Agoraki, Maria-Eleni K. & Aslanidis, Nektarios & Kouretas, Georgios P., 2022. "U.S. banks’ lending, financial stability, and text-based sentiment analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 73-90.
    7. Buch, Claudia M. & Eickmeier, Sandra & Prieto, Esteban, 2014. "In search for yield? Survey-based evidence on bank risk taking," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 12-30.
    8. J.A. Bikker & Tobias M. Vervliet, 2017. "Bank Profitability and Risk-Taking under Low Interest Rates," Working Papers 17-10, Utrecht School of Economics.
    9. Delis, Manthos D. & Kouretas, Georgios P. & Tsoumas, Chris, 2014. "Anxious periods and bank lending," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 1-13.
    10. Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2017. "Macroprudential Policy, Countercyclical Bank Capital Buffers, and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments," Journal of Political Economy, University of Chicago Press, vol. 125(6), pages 2126-2177.
    11. Vasso Ioannidou & Steven Ongena & José-Luis Peydró, 2015. "Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment," Review of Finance, European Finance Association, vol. 19(1), pages 95-144.
    12. Claudia M. Buch & Sandra Eickmeier & Esteban Prieto, 2014. "Macroeconomic Factors and Microlevel Bank Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(4), pages 715-751, June.
    13. Adam Geršl & Petr Jakubik & Dorota Kowalczyk & Steven Ongena & José-Luis Peydró, 2015. "Monetary Conditions and Banks’ Behaviour in the Czech Republic," Open Economies Review, Springer, vol. 26(3), pages 407-445, July.
    14. Teh Tian Huey & Daniel Chin Shen Li, 2016. "Measuring bank risk-taking behaviour - The risk-taking channel of Monetary Policy in Malaysia," IFC Working Papers 16, Bank for International Settlements.
    15. Colletaz, Gilbert & Levieuge, Grégory & Popescu, Alexandra, 2018. "Monetary policy and long-run systemic risk-taking," Journal of Economic Dynamics and Control, Elsevier, vol. 86(C), pages 165-184.
    16. Alin Marius ANDRIES & Vasile COCRIS & Ioana PLESCAU, 2015. "Low Interest Rates And Bank Risk-Taking: Has The Crisis Changed Anything? Evidence From The Eurozone," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 15, pages 125-148, June.
    17. Ongena, Steven & Peydró, José-Luis & Jiménez, Gabriel & Saurina, Jesús, 2007. "Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say About the Effects of Monetary Policy on Credit," CEPR Discussion Papers 6514, C.E.P.R. Discussion Papers.
    18. Melchisedek Joslem Ngambou Djatche, 2022. "Monetary policy, prudential policy and bank's risk‐taking: A literature review," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1559-1590, December.
    19. Thiago Christiano Silva & Solange Maria Guerra & Michel Alexandre da Silva & Benjamin Miranda Tabak, 2018. "Interconnectedness, Firm Resilience and Monetary Policy," Working Papers Series 478, Central Bank of Brazil, Research Department.
    20. Jiminez, G. & Ongena, S. & Saurina, J., 2007. "Hazardous Times for Monetary Policy : What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk?," Other publications TiSEM 9ed34391-f9ca-451b-9b25-c, Tilburg University, School of Economics and Management.

    More about this item

    Keywords

    Bank heterogeneity; bank performance; monetary policy; risk-taking;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20101233. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.