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The effect of emergency liquidity assistance (ELA) on bank lending during the euro area crisis

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  • Gibson, Heather D.
  • Hall, Stephen G.
  • Petroulas, Pavlos
  • Spiliotopoulos, Vassilis
  • Tavlas, George S.

Abstract

We examine the impact of emergency liquidity assistance (ELA) on bank lending in eleven euro area countries during the financial crisis. With the intensification of the crisis, ELA took on a pivotal role in some countries. However, assessments of the quantitative impact of ELA in the literature are non-existent. We estimate a structural panel model for the determination of bank lending, which includes the amount of ELA received by each bank, allowing us to investigate the direct effect of ELA on lending. Our model corrects a mis-specification found in the prototype model used in the literature. We then undertake a VAR analysis, which allows us to address the effect of ELA on GDP. Finally, we examine spillover effects among banks, indicating that ELA generated positive spillovers to other banks.

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  • Gibson, Heather D. & Hall, Stephen G. & Petroulas, Pavlos & Spiliotopoulos, Vassilis & Tavlas, George S., 2020. "The effect of emergency liquidity assistance (ELA) on bank lending during the euro area crisis," Journal of International Money and Finance, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:jimfin:v:108:y:2020:i:c:s0261560620300863
    DOI: 10.1016/j.jimonfin.2020.102154
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    Cited by:

    1. Heather D. Gibson & Stephen G. Hall & Pavlos Petroulas & George S. Tavlas, 2019. "On the Effects of the ECB’s Funding Policies on Bank Lending and the Demand for the Euro as an International Reserve," GRU Working Paper Series GRU_2019_014, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos, 2021. "Austerity, Assistance and Institutions: Lessons from the Greek Sovereign Debt Crisis," Open Economies Review, Springer, vol. 32(3), pages 435-478, July.
    3. Gibson, Heather D. & Hall, Stephen G. & Petroulas, Pavlos & Tavlas, George S., 2020. "On the effects of the ECB’s funding policies on bank lending," Journal of International Money and Finance, Elsevier, vol. 102(C).
    4. Eleftheria Kostika & Nikiforos T. Laopodis, 2022. "Assessing the effectiveness of the emergency liquidity assistance tool in the euro area," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4142-4153, October.

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    More about this item

    Keywords

    Euro area financial crisis; Emergency liquidity assistance (ELA); European banks; Spatial panel model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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