The Great Lockdown: Pandemic Response Policies and Bank Lending Conditions

56 Pages Posted: 11 Sep 2020

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Francesca Barbiero

European Central Bank (ECB)

Miguel Boucinha

European Central Bank (ECB)

Lorenzo Burlon

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: September, 2020

Abstract

This study analyses the policy measures taken in the euro area in response to the outbreak and the escalating diffusion of new coronavirus (COVID-19) pandemic. We focus on monetary, microprudential and macroprudential policies designed specifically to support bank lending conditions. For identification, we use proprietary data on participation in central bank liquidity operations, high-frequency reactions to monetary policy announcements, and confidential supervisory information on bank capital requirements. The results show that in the absence of the funding cost relief and capital relief associated with the pandemic response measures, banks’ ability to supply credit would have been severely affected. The results also indicate that the coordinated intervention by monetary and prudential authorities amplified the effects of the individual measures in supporting liquidity conditions and helping to sustain the flow of credit to the private sector. Finally, we investigate the potential real effects of the joint pandemic response measures by estimating the adjustment in labour input variables for firms that in the past have been more exposed to similar policies. We find that, in absence of monetary and prudential policies, the pandemic would lead to a significantly larger decline in firms’ employment.

Keywords: bank lending, COVID-19 crisis, monetary policy, prudential policy

JEL Classification: E51, E52, E58, G01, G21, G28

Suggested Citation

Altavilla, Carlo and Barbiero, Francesca and Boucinha, Miguel and Burlon, Lorenzo, The Great Lockdown: Pandemic Response Policies and Bank Lending Conditions (September, 2020). ECB Working Paper No. 20202465, Available at SSRN: https://ssrn.com/abstract=3690911

Carlo Altavilla (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Francesca Barbiero

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Miguel Boucinha

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Lorenzo Burlon

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
72
Abstract Views
337
rank
372,250
PlumX Metrics