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The bank lending channel of unconventional monetary policy: the impact of the VLTROs on credit supply in Spain

Author

Listed:
  • Miguel García-Posada

    (Banco de España)

  • Marcos Marchetti

    (Banco de España)

Abstract

We assess the impact on the credit supply to non-financial corporations of the two verylong-term refinancing operations (VLTROs) conducted by the Eurosystem in December 2011 and February 2012 for the case of Spain. To do so we use bank-firm level information from a sample of more than one million lending relationships over two years. Our methodology tackles the two main identification challenges: (i) how to disentangle credit supply from demand; and (ii) the endogeneity of VLTRO bids, as banks with more deteriorated funding conditions were more likely both to ask for a large amount of funds and to restrict credit supply. First, we exploit the fact that many firms simultaneously borrow from several banks to effectively control for firm-specific credit demand. Second, we exhaustively control for banks’ funding difficulties by constructing several measures of balance-sheet strength and by including bank fixed effects. Our findings suggest that the VLTROs had a positive moderately-sized effect on the supply of bank credit to firms, providing evidence of a bank lending channel in the context of unconventional monetary policy. We also find that the effect was greater for illiquid banks and that it was driven by credit to SMEs, as there was no impact on loans to large firms.

Suggested Citation

  • Miguel García-Posada & Marcos Marchetti, 2015. "The bank lending channel of unconventional monetary policy: the impact of the VLTROs on credit supply in Spain," Working Papers 1512, Banco de España.
  • Handle: RePEc:bde:wpaper:1512
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    More about this item

    Keywords

    unconventional monetary policy; VLTRO; credit supply; bank lending channel.;
    All these keywords.

    JEL classification:

    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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