The Impact of the ECB's Targeted Long-Term Refinancing Operations on Banks’ Lending Policies: The Role of Competition

68 Pages Posted: 14 Jan 2020

Date Written: January, 2020

Abstract

We assess the impact of the Eurosystem’s Targeted Long-Term Refinancing Operations (TLTROs) on the lending policies of euro area banks. We first build a theoretical model in which banks compete in the credit and deposit markets. We distinguish between direct and indirect effects. Direct effects take place because bidding banks expand their loan supply due to the lower marginal costs implied by the TLTROs. Indirect effects on non-bidders operate via changes in the competitive environment in banks’ credit and deposit markets. We then test these predictions with a sample of 130 banks from 13 countries focusing on the first TLTRO series. Regarding direct effects, we find an easing impact on margins on loans to relatively safe borrowers, but no impact on credit standards. Regarding indirect effects, there is a positive impact on the loan supply on non-bidders which operates via an easing of credit standards.

Keywords: competition, lending policies, TLTROs, unconventional monetary policy

JEL Classification: G21, E52, E58

Suggested Citation

Andreeva, Desislava and García-Posada, Miguel, The Impact of the ECB's Targeted Long-Term Refinancing Operations on Banks’ Lending Policies: The Role of Competition (January, 2020). ECB Working Paper No. 2364. Available at SSRN: https://ssrn.com/abstract=3519195

Desislava Andreeva (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Miguel García-Posada

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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