Unconventional Monetary Policy and Bank Lending Relationships
69 Pages Posted: 3 Jan 2018
Date Written: December 1, 2017
How to support private lending to firms in recessions is a major open question. This paper uses an unexpected change in the collateral framework of the European Central Bank that reduced the cost of funding loans to a subset of firms in France in 2012, to examine how bank adjust their corporate lending portfolio in a downturn. It provides causal evidence that targeted unconventional monetary policy can be an effective lever to increase private credit and reduce contagion of financial distress. The effect is strongly driven by firms with only a single bank relationship, especially less risky borrowers with information intensive banking relationships.
Keywords: Unconventional Monetary Policy, Relationship Banking, SME Finance, Bank Lending, Small Business, Collateral
JEL Classification: E52, G21, G30
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