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The transmission of monetary policy to credit supply in the euro area

Author

Listed:
  • Miguel García-Posada

    (Banco de España)

  • Peter Paz

    (Banco de España)

Abstract

We present empirical evidence on the transmission of monetary policy to banks’ credit standards (i.e. loan approval criteria) in loans granted to non-financial corporations (NFCs) in the euro area. To this end, we use a confidential survey in which banks are asked about developments in their respective credit markets, coupled with banks’ balance sheets and high-frequency monetary policy shocks. First, we find that poorly capitalized banks are more likely to tighten their credit standards in loans to NFCs. Second, these banks have tended to tighten their credit standards more in loans to SMEs than in loans to large firms during the current restrictive monetary phase. Third, the transmission of monetary policy to credit standards in loans to NFCs is stronger in poorly capitalized banks. Fourth, the relationship between monetary policy and credit standards is driven by large contractionary monetary policy shocks, which reveals important asymmetries in the bank lending channel. Finally, a tightening of the monetary policy stance also increases rejection rates in loans to NFCs, to a greater extent in poorly capitalized banks.

Suggested Citation

  • Miguel García-Posada & Peter Paz, 2024. "The transmission of monetary policy to credit supply in the euro area," Working Papers 2430, Banco de España.
  • Handle: RePEc:bde:wpaper:2430
    DOI: https://doi.org/10.53479/37639
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    References listed on IDEAS

    as
    1. Pablo Ottonello & Thomas Winberry, 2020. "Financial Heterogeneity and the Investment Channel of Monetary Policy," Econometrica, Econometric Society, vol. 88(6), pages 2473-2502, November.
    2. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 102(5), pages 2301-2326.
    3. Holton, Sarah & Rodriguez d’Acri, Costanza, 2018. "Interest rate pass-through since the euro area crisis," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 277-291.
    4. Adrian, Tobias & Song Shin, Hyun, 2010. "Financial Intermediaries and Monetary Economics," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 12, pages 601-650, Elsevier.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    monetary policy; bank capital; credit supply; bank lending channel;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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