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Impact of targeted credit easing by the ECB: Bank-level evidence

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Abstract

The interest rate in the second series of ECB targeted longer-term refinancing operations is conditional on a participant-specific lending benchmark. The restrictiveness of this benchmark varies between banks. We employ fixed effects estimations on a unique micro-dataset and investigate the relationship between the benchmark restrictiveness and net bank lending. We find that a more restrictive benchmark is associated with more total net lending and net lending to non-financial corporates by relatively large banks. Banks that are relatively large and face the most restrictive benchmark increase their lending to the real economy with 9 to 17 percent. We find no significant effects on net lending by relatively small banks. Furthermore, the restrictiveness of the benchmark does not affect net lending to households. Our findings suggest that the design of targeted lending benchmarks influences bank credit flows and that a more binding benchmark would have been even more effective in stimulating bank lending.

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  • Joost Bats & Tom Hudepohl, 2019. "Impact of targeted credit easing by the ECB: Bank-level evidence," DNB Working Papers 631, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:631
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    Cited by:

    1. 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.
    2. Sylvestre, Julie & Coutinho, Cristina, 2020. "The use of the Eurosystem’s monetary policy instruments and its monetary policy implementation framework between the first quarter of 2018 and the fourth quarter of 2019," Occasional Paper Series 245, European Central Bank.
    3. Vergote, Olivier & Sugo, Tomohiro, 2020. "Who takes the ECB’s targeted funding?," Working Paper Series 2439, European Central Bank.
    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.

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    More about this item

    Keywords

    TLTRO; monetary policy; refinancing operations; credit easing; bank credit;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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