The Transmission Channels of Unconventional Monetary Policy: Evidence from a Change in Collateral Requirements in France

Abstract

Using a bank-firm level credit registry combined with firm-level balance sheet data we establish the presence of heterogeneity in the effects of unconventional monetary policy transmission. We examine the consequences of a loosening in the collateral eligibility requirement for credit refinancing in France. The policy was designed to affect bank lending positively. We expect a linear increase in lending and an additional increase in loans to firms with newly acceptable rating. We find a large heterogeneity of the monetary policy transmission including the unexpected reduction of lending by the banks benefiting the most from the policy. These are small, risk-averse banks whose foremost concern after the recession was to strengthen their balance sheets. Banks least affected by the policy respond with a reduction in credit to low risk borrowers in reaction to the change in the market structure. Last we document heterogenous effects of the policy on firms depending on their size.

Keywords: Corporate Finance, individual data, Real Effects Of Monetary Policy, Transmission Channels, Unconventional Monetary Policy

JEL Classification: C55, C58, E44, E52, E58, G21, G28, G30, G32