Does Bank Competition Influence the Lending Channel in the Euro Area?

32 Pages Posted: 6 Jul 2013 Last revised: 6 Mar 2015

See all articles by Zuzana Fungáčová

Zuzana Fungáčová

Bank of Finland - Institute for Economies in Transition (BOFIT)

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT)

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Date Written: June 25, 2013

Abstract

This paper examines how bank competition influences the bank lending channel in the Euro area countries. Using a large panel of banks from 12 euro area countries over the period 2002-2010 we analyze the reaction of loan supply to monetary policy actions depending on the degree of bank competition. We find that the effect of monetary policy on bank lending is dependent on bank competition: the transmission of monetary policy through the bank lending channel is less pronounced for banks with extensive market power. Further investigation shows that banks with less market power were more sensitive to monetary policy only before the financial crisis. These results suggest that the bank market power has a significant impact on monetary policy effectiveness. Therefore, wide variations in the level of bank market power may lead to asymmetric effects of a single monetary policy.

Keywords: bank competition, bank lending channel, monetary policy, euro area

JEL Classification: E52, G21

Suggested Citation

Fungacova, Zuzana and Solanko, Laura and Weill, Laurent, Does Bank Competition Influence the Lending Channel in the Euro Area? (June 25, 2013). Journal of Banking and Finance, Vol. 49, 2014, p. 356-366, BOFIT Discussion Paper No. 17/2013, Available at SSRN: https://ssrn.com/abstract=2289844 or http://dx.doi.org/10.2139/ssrn.2289844

Zuzana Fungacova (Contact Author)

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Snellmaninaukio
PO Box 160
Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/bofit_en/index.htm

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/solanko_laura/

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
120
Abstract Views
2,016
Rank
478,556
PlumX Metrics