The Transmission of Monetary Policy to Credit Supply in the Euro Area

WP BdE

Joint with Miguel García-Posada

Abstract:
We present empirical evidence on the transmission of monetary policy to banks’ credit standards in loans granted to non-financial corporations (NFCs) in the euro area. Using confidential survey responses from the ECB’s Bank Lending Survey, bank balance sheet data, and high-frequency monetary policy shocks, we find that poorly capitalized banks are more likely to tighten credit standards, especially in loans to SMEs. Moreover, large contractionary shocks drive this behavior, and rejection rates also rise more in weaker banks. These results highlight important asymmetries in the bank lending channel.

JEL Codes: E51, E52, G21. Keywords: monetary policy, bank capital, credit supply, bank lending channel.