The augmented bank balance-sheet channel of monetary policy

Christian Bittner, Diana Bonfim, Florian Heider, Farzad Saidi, Glenn Schepens and Carla Soares

No 2745, Working Paper Series from European Central Bank

Abstract: This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use credit registry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards. JEL Classification: E44, E52, E58, E63, F45, G20, G21

Keywords: bank balance sheets; bank lending; bank risk taking; euro-area heterogeneity; transmission of monetary policy (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-ban, nep-eec, nep-ifn and nep-mon
Note: 276127
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2745~72b90b74da.en.pdf (application/pdf)

Related works:
Working Paper: The Augmented Bank Balance-Sheet Channel of Monetary Policy (2022)
Working Paper: The Augmented Bank Balance-Sheet Channel of Monetary Policy (2022)
Working Paper: The Augmented Bank Balance-Sheet Channel of Monetary Policy (2022)
Working Paper: The augmented bank balance-sheet channel of monetary policy (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222745

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().