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The great lockdown: pandemic response policies and bank lending conditions

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  • Altavilla, Carlo
  • Barbiero, Francesca
  • Boucinha, Miguel
  • Burlon, Lorenzo

Abstract

This study analyses the policy measures taken in the euro area in response to the outbreak and the escalating diffusion of new coronavirus (COVID-19) pandemic. We focus on monetary, microprudential and macroprudential policies designed specifically to support bank lending conditions. For identification, we use proprietary data on participation in central bank liquidity operations, high-frequency reactions to monetary policy announcements, and confidential supervisory information on bank capital requirements. The results show that in the absence of the funding cost relief and capital relief associated with the pandemic response measures, banks’ ability to supply credit would have been severely affected. The results also indicate that the coordinated intervention by monetary and prudential authorities amplified the effects of the individual measures in supporting liquidity conditions and helping to sustain the flow of credit to the private sector. Finally, we investigate the potential real effects of the joint pandemic response measures by estimating the adjustment in labour input variables for firms that in the past have been more exposed to similar policies. We find that, in absence of monetary and prudential policies, the pandemic would lead to a significantly larger decline in firms’ employment. JEL Classification: E51, E52, E58, G01, G21, G28

Suggested Citation

  • 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.
  • Handle: RePEc:ecb:ecbwps:20202465
    Note: 2279334
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    Cited by:

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    2. Feyen, Erik & Alonso Gispert, Tatiana & Kliatskova, Tatsiana & Mare, Davide S., 2021. "Financial Sector Policy Response to COVID-19 in Emerging Markets and Developing Economies," Journal of Banking & Finance, Elsevier, vol. 133(C).
    3. Budnik, Katarzyna & Dimitrov, Ivan & Groß, Johannes & Jančoková, Martina & Lampe, Max & Sorvillo, Bianca & Stular, Anze & Volk, Matjaz, 2021. "Policies in support of lending following the coronavirus (COVID 19) pandemic," Occasional Paper Series 257, European Central Bank.
    4. Altavilla, Carlo & Lemke, Wolfgang & Linzert, Tobias & Tapking, Jens & von Landesberger, Julian, 2021. "Assessing the efficacy, efficiency and potential side effects of the ECB’s monetary policy instruments since 2014," Occasional Paper Series 278, European Central Bank.
    5. Werner Hölzl & Michael Böheim & Klaus S. Friesenbichler & Agnes Kügler & Thomas Leoni, 2021. "Staatliche Hilfsmaßnahmen für Unternehmen in der COVID-19-Krise. Eine begleitende Analyse operativer Aspekte und Unternehmenseinschätzungen," WIFO Studies, WIFO, number 66624.
    6. Nelimarkka, Jaakko & Laine, Olli-Matti, 2021. "The effects of the ECB's pandemic-related monetary policy measures," BoF Economics Review 4/2021, Bank of Finland.
    7. DI BARTOLOMEO, Giovanni & D'IMPERIO, Paolo & FELICI, Francesco, 2021. "The fiscal response to the Italian COVID-19 crisis: A counterfactual analysis," Working Papers 2021006, University of Antwerp, Faculty of Business and Economics.
    8. Andrej Cupák & Ján Klacso & Martin Suster, 2020. "Surveying the Impact of the Covid-19 Recession on the Financial Situation of Indebted Households," Working and Discussion Papers WP 6/2020, Research Department, National Bank of Slovakia.
    9. Markus Eller & Reiner Martin & Lukas Vashold, 2021. "CESEE’s macroprudential policy response in the wake of the COVID-19 crisis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/21, pages 55-69.
    10. Alice Abboud & Elizabeth Duncan & Akos Horvath & Diana A. Iercosan & Bert Loudis & Francis Martinez & Timothy Mooney & Ben Ranish & Ke Wang & Missaka Warusawitharana & Carlo Wix, 2021. "COVID-19 as a Stress Test: Assessing the Bank Regulatory Framework," Finance and Economics Discussion Series 2021-024, Board of Governors of the Federal Reserve System (U.S.).
    11. Holm-Hadulla, Fédéric & Musso, Alberto & Rodriguez-Palenzuela, Diego & Vlassopoulos, Thomas, 2021. "Evolution of the ECB’s analytical framework," Occasional Paper Series 277, European Central Bank.
    12. Zaghini, Andrea, 2021. "The Covid pandemic in the market: infected, immune and cured bonds," Working Paper Series 2563, European Central Bank.
    13. Emilie Da Silva & Vincent Grossmann-Wirth & Benoit Nguyen & Miklos Vari, 2021. "Paying Banks to Lend? Evidence from the Eurosystem's TLTRO and the Euro Area Credit Registry," Working papers 848, Banque de France.
    14. 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.
    15. Kazakov, Aleksandr & Koetter, Michael & Titze, Mirko & Tonzer, Lena, 2022. "Firm subsidies, financial intermediation, and bank risk," IWH Discussion Papers 2/2022, Halle Institute for Economic Research (IWH).
    16. Kremer, Manfred & Chavleishvili, Sulkhan, 2021. "Measuring Systemic Financial Stress and its Impact on the Macroeconomy," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242346, Verein für Socialpolitik / German Economic Association.
    17. Piotr Lasak, 2021. "The Commercial Banking Sector in Eurozone after the Pandemic: The Paths to Recovery," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 1233-1246.
    18. Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas & Adolf, Petra & Kok, Christoffer & Altavilla, Carlo & Lewis, Vivien & Andreeva, De, 2021. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.
    19. Guglielmo Maria Caporale & Woo-Young Kang & Fabio Spagnolo & Nicola Spagnolo, 2021. "The Covid-19 Pandemic, Policy Responses and Stock Markets in the G20," CESifo Working Paper Series 9299, CESifo.
    20. Guglielmo Maria Caporale & Anamaria Sova & Robert Sova, 2021. "Trade Flows, Private Credit and the Covid-19-Pandemic: Panel Evidence from 35 OECD Countries," CESifo Working Paper Series 9400, CESifo.
    21. Harasztosi, Péter & Maurin, Laurent & Pál, Rozália & Revoltella, Debora & Van Der Wielen, Wouter, 2022. "Firm-level policy support during the crisis: So far, so good?," EIB Working Papers 2022/01, European Investment Bank (EIB).

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    More about this item

    Keywords

    bank lending; COVID-19 crisis; monetary policy; prudential policy;
    All these keywords.

    JEL classification:

    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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