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

We analyse the pass-through of monetary policy measures to lending rates to households and firms in the euro area using novel bank-level datasets. Banks’ characteristics such as the capital ratio, exposure to domestic sovereign debt, percentage of non-performing loans and stability of funding structure are responsible for the heterogeneity in the pass-through of conventional monetary policy changes. The location of a bank is irrelevant. Non-standard measures reduce lending rate heterogeneities. Banks located in financially stressed countries and with weak balance sheets are most affected. Banks’ lending margins have fallen considerably.