The Bank Lending Channel of Conventional and Unconventional Monetary Policy

36 Pages Posted: 17 Mar 2017

Date Written: December 15, 2016

Abstract

Using a new monthly dataset on bank-level lending rates, we study the transmission of conventional and unconventional monetary policy in the euro area via shifts in the supply of credit. We find that a bank lending channel is operational for both types of measures, though its functioning differs: for standard operations the transmission is weaker for banks with more capital and a more solid funding structure, in line with an important role of asymmetric information. However, in response to non-standard measures lending supply expands by more at banks with stronger capital and funding positions, suggesting a crucial role for regulatory and economic constraints. We also find that the transmission of unconventional measures is attenuated by their negative effect on future bank’s capital position via the net interest income (reverse bank capital channel). Finally, we find that large sovereign exposures mute the response of lending rates to conventional policy, but amplify the transmission of unconventional measures.

Keywords: unconventional monetary policy, lending rates, bank lending channel, bank capital channel, fragmentation

JEL Classification: E30, E32, E51

Suggested Citation

Albertazzi, Ugo and Nobili, Andrea and Signoretti, Federico Maria, The Bank Lending Channel of Conventional and Unconventional Monetary Policy (December 15, 2016). Bank of Italy Temi di Discussione (Working Paper) No. 1094. Available at SSRN: https://ssrn.com/abstract=2934235 or http://dx.doi.org/10.2139/ssrn.2934235

Ugo Albertazzi

ECB -DG Monetary Policy ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Andrea Nobili (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Federico Maria Signoretti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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