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The effect of TLTRO-II on bank lending

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  • Laine, Olli-Matti

Abstract

This study estimates the effect of the European Central Bank’s second series of targeted longerterm refinancing operations (TLTRO-II) on bank lending using bank level data from multiple countries and instrumental variable estimation. Effects on corporate loans and loans for consumption are analysed separately. The cumulative effect of TLTRO-II on participating banks’ stock of corporate loans is estimated to be about 20 per cent. The effect on lending for consumption is found close to zero. The positive effects on corporate loans are found to be driven by crisis countries indicating that the effectiveness of monetary policy depends on the economic conditions. Additionally, the effect on government bond purchases is found negative. This result is very different from the earlier results regarding non-targeted liquidity operations.

Suggested Citation

  • Laine, Olli-Matti, 2019. "The effect of TLTRO-II on bank lending," Research Discussion Papers 7/2019, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:2019_007
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    References listed on IDEAS

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    Cited by:

    1. Molyneux, Philip & Pancotto, Livia & Reghezza, Alessio & Rodriguez d'Acri, Costanza, 2022. "Interest rate risk and monetary policy normalisation in the euro area," Journal of International Money and Finance, Elsevier, vol. 124(C).
    2. Altavilla, Carlo & Barbiero, Francesca & Boucinha, Miguel & Burlon, Lorenzo, 2020. "The great lockdown: pandemic response policies and bank lending conditions," Working Paper Series 2465, European Central Bank.
    3. Daniel Kaufmann, 2020. "Does government-backed lending prevent unemployment? An assessment of the Swiss COVID-19 lending program," IRENE Working Papers 20-10, IRENE Institute of Economic Research.
    4. Claudia Kwapil & Kilian Rieder, 2021. "The effects of the monetary policy response to the COVID-19 pandemic: preliminary evidence from a pilot study using Austrian bank-level data," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/20-Q1/, pages 131-152.
    5. Bednarek, Peter & Dinger, Valeriya & Kaat, Daniel Marcel te & Westernhagen, Natalja von, 2021. "To whom do banks channel central bank funds?," Journal of Banking & Finance, Elsevier, vol. 128(C).
    6. Andreeva, Desislava C. & García-Posada, Miguel, 2021. "The impact of the ECB's targeted long-term refinancing operations on banks’ lending policies: The role of competition," Journal of Banking & Finance, Elsevier, vol. 122(C).

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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

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