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Bank Specialization and the Transmission of Euro Area Monetary Policy

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  • Konrad Kuhmann

    (Latvijas Banka)

Abstract

Bank lending is a key factor in the transmission of monetary policy to the real economy. Using granular loan data on the euro area, I analyze how bank specialization interacts with the effects of monetary policy on credit. I first document that bank lending in the euro area is characterized by a substantial degree of specialization. That is, banks tend to be over-exposed to borrowers in certain industries and of certain size. I also find that higher specialization is generally associated with more favorable lending conditions. Most importantly, banks partly insulate their preferred borrowers from the consequences of monetary policy. In particular, they adjust interest rates and lending relatively less strongly for borrowers from groups in which they specialize. My findings suggest that bank specialization is relevant for the aggregate and distributional consequences of monetary policy.

Suggested Citation

  • Konrad Kuhmann, 2025. "Bank Specialization and the Transmission of Euro Area Monetary Policy," Working Papers 2025/06, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:202506
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    File URL: https://datnes.latvijasbanka.lv/papers/WP_6_2025.pdf
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    Keywords

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

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