We exploit the Eurosystem’s longer-term refinancing operations (LTROs) of 2011–2012 to assess whether a large provision of central bank liquidity to banks during a financial crisis has a positive impact on banks’ credit supply to firms. We control for credit demand by examining firms that borrow from several banks, in addition to controlling for confounding factors at the level of banks. We find that the LTROs enhanced loan supply: according to our baseline estimate, banks borrowing 1 billion euros from the facility increased their loan supply by 186 million euros over one year. We also find that the transmission mostly took place with the first operation of December 2011, in which banks that were more capital constrained bid more. Moreover, we show that the opportunity to substitute long-term central bank liquidity for short-term liquidity enhanced this transmission. Lastly, the operations benefited larger borrowers more and did not lead banks to increase their lending to riskier firms.

We exploit the Eurosystem's longer-term refinancing operations (LTROs) of 2011-2012 to analyze the effects that a large provision of central bank liquidity to banks has on the credit supply to firms. We control for credit demand by examining firms that borrow from several banks, in addition to controlling for banks' risk. We find that LTROs enhanced loan supply in France. Nevertheless, the transmission took place mostly with the first operation of December 2011, in which constrained banks bid more, and larger borrowers benefited more.The opportunity to substitute long-term central bank borrowing for short-term borrowing was instrumental in this transmission.

We explore how banks transmit central bank liquidity injections using unique variation in the ECB’s 2011-12 Very Long-Term Refinancing Operations (VLTROs) which affected lending to firms discontinuously across credit ratings (i.e., within banks). We show that banks transmit liquidity differently to multi-bank firms than to firms with only one bank. Single-bank firms receive longer-term relationship lending and increase investment, while multi-bank firms receive short-term transactions-style lending only. Policy effects are attributable to increasing the maturity of bank borrowing from the ECB in combination with allowing banks to use loans to firms as collateral for such borrowing.

* We are grateful to Cécile Simon for her remarkable assistance and Jean-Guillaume Sahuc for his helpful comments. We also thank J.-M. Charpin who discussed in October 2002 a preliminary version of this paper at the Banque de France workshop chaired by M.-O. Strauss-Kahn. All remaining errors are ours. The views expressed herein are those of the authors and do not necessarily reflect those of the Banque de France.

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