Mending the broken link: Heterogeneous bank lending rates and monetary policy pass-through

Altavilla, Carlo; Canova, Fabio; Ciccarelli, Matteo

doi:10.1016/j.jmoneco.2019.01.001

Cited by 106 publications

(75 citation statements)

References 45 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…e combination of these dynamics -higher sovereign risk and greater home bias in sovereign exposure for banks in stressed countries -likely explains heterogeneity in monetary transmission to bank lending across the euro area. ese results are consistent with evidence on the adverse e ect of sovereign risk on bank lending and monetary transmission (Altavilla et al, 2016(Altavilla et al, , 2017Bofondi et al, 2018;De Marco, 2017;Peydro et al, 2017;Popov and Van Horen, 2015), and establish a direct link between sovereign risk and heterogeneity in monetary transmission to bank lending across countries.…”

Section: Sovereign Stress As Source Of Heterogeneitysupporting

confidence: 85%

“…In response to the same 1% policy rate cut, the credit expansion of highly exposed stressed countries banks was instead 2.75% weaker than that of banks located in non-stressed countries. ese ndings are consistent with the evidence that sovereign risk weighs down on bank lending and impairs the transmission of monetary policy (Altavilla et al, 2016(Altavilla et al, , 2017Bofondi et al, 2018;De Marco, 2017;Peydro et al, 2017;Popov and Van Horen, 2015). e contribution of this paper is twofold.…”

Section: Introductionsupporting

confidence: 85%

See 1 more Smart Citation

Sovereign Risk and Cross-Country Heterogeneity in the Transmission of Monetary Policy to Bank Lending in the Euro Area

Grandi

2018

SSRN Journal

View full text Add to dashboard Cite

Is the transmission of monetary policy to bank lending heterogeneous across euro area countries? is paper employs annual bank level data to test whether the bank lending channel of monetary policy was heterogeneous in the euro area over the period 2007-2016. To do so it follows a simple procedure that allows direct testing of how monetary policy a ected similar banks located in di erent countries. Results indicate that the transmission of monetary policy to bank lending was heterogeneous across countries that were di erently exposed to the sovereign debt crisis. On average, the same 1% cut in the policy rate led to a 1.6% increase in lending by banks located in non-stressed countries as opposed to a 0.4% increase for banks located in countries under severe sovereign stress. Unconventional monetary policy -as captured by the ECB shadow rate -was also unevenly transmi ed to bank lending. Exposure to sovereign risk is identi ed as a key source of heterogeneity. Within stressed countries, banks with larger sovereign exposures reacted to monetary easing by expanding lending by less than banks with smaller exposures. As a result, monetary accommodation was smoothly transmi ed to lending only by banks with limited exposure to sovereign risk. In response to the same 1% policy rate cut, the credit expansion of highly exposed stressed countries banks was instead 2.75% weaker than that of banks in non-stressed countries.ese ndings support existing evidence on sovereign risk having direct adverse consequences for bank lending and highlight the extent to which sovereign risk aggravated heterogeneities in the transmission on monetary policy to the real economy via the banking system during the euro area debt crisis.

show abstract

Section: Sovereign Stress As Source Of Heterogeneitysupporting

confidence: 85%

Section: Introductionsupporting

confidence: 85%

Sovereign Risk and Cross-Country Heterogeneity in the Transmission of Monetary Policy to Bank Lending in the Euro Area

Grandi

2018

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…Since the eruption of the global financial crisis, the attention on interest rate pass‐through has increased and the literature which is currently developing highlights several interesting aspects of the way banks set their interest rates (Altavilla, Canova, & Ciccareli, ; Hännikäinen, ). Hristov et al.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Since the eruption of the global financial crisis, the attention on interest rate pass-through has increased and the literature which is currently developing highlights several interesting aspects of the way banks set their interest rates (Altavilla, Canova, & Ciccareli, 2016;Hännikäinen, 2015). Hristov et al (2014) find that the interest rate pass-through to retail banks margins has been hampered after the crisis and attribute the widening of the spreads across euro-area countries to the different structures of these economies.…”

Section: Monetary Policy Transmission and Ecb's Non-standard Measuresmentioning

confidence: 99%

Bank lending margins in the euro area: Funding conditions, fragmentation and ECB's policies

Louri

Migiakis

2019

Rev Financ Econ

View full text Add to dashboard Cite

In this paper we study the determinants of lending margins paid by euro‐area corporates for their bank loans. Across two separate groups of countries (distressed and non‐distressed) we examine whether lending margins have been affected by structural changes in the banking sector, the credit and liquidity position of banks and the costs of funding in the corporate and sovereign bond markets. The role of ECB policies with respect to narrowing down the fragmentation in the bank lending channel is also investigated through a structural panel VAR model for the period 2003:1 to 2014:12.

show abstract

“…Following Altavilla, Canova and Ciccarelli, 2016), bank balance sheet characteristics like capital ratios and the exposure to sovereign debt are crucial for the heterogeneity of the monetary policy pass-through. The introduction of bank levies to internalize future financial risks had moderate net effects on lending, see Haskamp (2018) for some German evidence.…”

Section: Lishedmentioning

confidence: 99%

Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

Belke

Dreger

2019

Jahrbücher Für Nationalökonomie Und Statistik

View full text Add to dashboard Cite

The paper examines the bank lending activities of banks in a low interest rate environ-ment. External financing of small-and medium-sized enterprises in the euro area primari-ly takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound. JEL-Classification: E44, E51, E52 AbstractThe paper examines the bank lending activities of banks in a low interest rate environment. External financing of small-and medium-sized enterprises in the euro area primarily takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound. JEL-Codes: E44, E51, E52 Keywords:Bank lending, banking regulation, monetary transmission mechanisms, low interest rate environmentBelke (corresponding author): Ad personam Jean Monnet Professor, University of Duisburg-Essen, ansgar.belke@uni-due.de, Dreger: cdreger@diw.de. We would like to thank the Wissenschaftsförderung der Sparkassen-Finanzgruppe e. V. for financial support.

show abstract

Mending the broken link: Heterogeneous bank lending rates and monetary policy pass-through

Cited by 106 publications

References 45 publications

Sovereign Risk and Cross-Country Heterogeneity in the Transmission of Monetary Policy to Bank Lending in the Euro Area

Sovereign Risk and Cross-Country Heterogeneity in the Transmission of Monetary Policy to Bank Lending in the Euro Area

Bank lending margins in the euro area: Funding conditions, fragmentation and ECB's policies

Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

Contact Info

Product

Resources

About