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Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area

Author

Listed:
  • Michael Ehrmann

    (European Central Bank)

  • Leonardo Gambacorta

    (Banca d’Italia)

  • Jorge Martínez-Pagés

    (Banco de España)

  • Patrick Sevestre

    (Banque de France)

  • Andreas Worms

    (Deutsche Bundesbank)

Abstract

This paper offers a comprehensive comparison of the structure of banking and financial markets in the euro area. Based on this, several hypotheses about the role of banks in monetary policy transmission are developed. Many of the predictions that have been proposed for the U.S. are deemed unlikely to apply in Europe. Testing these hypotheses we find that monetary policy does alter bank loan supply, with the effects most dependent on the liquidity of individual banks. Unlike in the US, the size of a bank does generally not explain its lending reaction. We also show that the standard publicly available database, BankScope, obscures the heterogeneity across banks. Indeed, for several types of questions BankScope data suggest very different answers than more complete data that reside at national central banks.

Suggested Citation

  • Michael Ehrmann & Leonardo Gambacorta & Jorge Martínez-Pagés & Patrick Sevestre & Andreas Worms, 2001. "Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area," Working Papers 0118, Banco de España.
    • Handle: RePEc:bde:wpaper:0118
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/01/Fic/dt0118e.pdf
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    References listed on IDEAS

    as
    1. Topi, Jukka & Vilmunen, Jouko, 2001. "Transmission of monetary policy shocks in Finland: evidence from bank level data on loans," Working Paper Series 100, European Central Bank.
    2. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
    3. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    monetary policy transmission; financial structure; bank lending;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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