Unconventional Monetary Policy and Bank Lending Relationships

77 Pages Posted: 3 Jan 2018 Last revised: 2 Dec 2019

See all articles by Christophe Cahn

Christophe Cahn

Banque de France - Direction des Entreprises

Anne Duquerroy

Banque de France

William Mullins

University of California, San Diego (UCSD) - Rady School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2017

Abstract

How do banks transmit long-term central bank liquidity injections to borrowers? We exploit unique variation in how the ECB’s 2011-12 Long-Term Refinancing Operations (LTROs) affected lending to firms discontinuously across credit ratings (within banks) to make four contributions. (i) We show the LTROs induced increased bank lending to firms in France, including to SMEs, an elusive policy objective. (ii) We uncover important heterogeneity: banks pass through LTRO liquidity very differently to multi- bank firms than they do to firms with only one bank. (iii) Differences in liquidity transmission map to archetypal lending types: single-bank firms receive relationship lending, and these firms invest and grow in response, while multi-bank firms receive transactions-style lending and do not increase their investment. (iv) While the majority of the effect flows to firms whose loans are policy-eligible, we identify a spillover (onto multi-bank firms only) that appears to be driven by bank competition for borrowers.

Keywords: Unconventional Monetary Policy, Relationship Banking, SME Finance, Bank Lending, Collateral

JEL Classification: E51, E52, E58, G01, G2

Suggested Citation

Cahn, Christophe and Duquerroy, Anne and Mullins, William, Unconventional Monetary Policy and Bank Lending Relationships (December 1, 2017). Banque de France Working Paper No. 659. Available at SSRN: https://ssrn.com/abstract=3095527 or http://dx.doi.org/10.2139/ssrn.3095527

Christophe Cahn (Contact Author)

Banque de France - Direction des Entreprises ( email )

39 rue Croix des Petits Champs
Paris Cedex 01 75049
France

Anne Duquerroy

Banque de France ( email )

Paris
France

William Mullins

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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