Bank Lending and Monetary Transmission in the Euro Area

35 Pages Posted: 16 Jul 2013

See all articles by Roberto A. De Santis

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2013

Abstract

To what extent does the availability of credit depend on monetary policy? And, does this relationship vary with bank characteristics? Based on a common source of balance sheet data for the four largest economies of the eurozone over the period 1999–2011, we find that the effects of monetary policy on bank lending are significant and heterogeneous in Germany and Italy – which are characterized by a large number of banks – but are weaker and more homogeneous in Spain and France – whose banking industry has a higher degree of market concentration. In particular, monetary policy appears to exert larger effects on cooperative and savings banks with lower liquidity and lesser capital in Germany and savings banks with smaller size in Italy. Our results highlight that the transmission of monetary policy over bank lending in the eurozone is highly heterogeneous. From a policy perspective, the increased large number of cooperative and savings banks, which have had access during the last financial crisis to the refinancing operations of the European Central Bank, bodes well for the improvement of the monetary transmission mechanism. The analysis also suggests that competition policy measures aiming at reducing entry barrier might facilitate the transmission mechanism.

Suggested Citation

De Santis, Roberto A. and Surico, Paolo, Bank Lending and Monetary Transmission in the Euro Area (July 2013). Economic Policy, Vol. 28, Issue 75, pp. 423-457, 2013. Available at SSRN: https://ssrn.com/abstract=2294272 or http://dx.doi.org/10.1111/1468-0327.12013

Roberto A. De Santis (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Paolo Surico

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

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