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Bank risk and monetary policy

  • Yener Altunbas


    (University of Wales)

  • Leonardo Gambacorta


    (Bank for International Settlements)

  • David Marqu�s-Ib��ez


    (European Central Bank)

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.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 712.

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Date of creation: May 2009
Date of revision:
Handle: RePEc:bdi:wptemi:td_712_09
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  3. Jean-Bernard Chatelain & Andrea Generale & Philip Vermeulen & Michael Ehrmann & Jorge Martínez-Pagés & Andreas Worms, 2003. "Monetary policy transmission in the euro area: New evidence from micro data on firms and banks," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00119489, HAL.
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  19. Beverly Hirtle, 2008. "Credit derivatives and bank credit supply," Staff Reports 276, Federal Reserve Bank of New York.
  20. Michael Ehrmann & Leonardo Gambacorta & Jorge Mart�nez-Pag�s & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers) 432, Bank of Italy, Economic Research and International Relations Area.
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