The Effect of Emergency Liquidity Assistance (ELA) on Bank Lending during the Euro Area Crisis

Stephen G. Hall (), Heather Gibson, Pavlos Petroulas and George Tavlas

No 19/01, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We examine the impact of Emergency Liquidity Assistance (ELA) on bank lending in eleven euro area countries. With the intensification of the financial crisis, ELA came to take on an almost systemic role in some countries (notably Greece), with either the whole or large parts of national banking systems depending on it. Despite this crucial role, assessments of the quantitative impact of ELA in the literature are non-existent. This paper aims to fill this gap. 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 bank lending. Our model corrects a key mis-specification found in the prototype model used in the literature on bank lending. We then undertake a VAR analysis, which allows us to address the effect of ELA on GDP. Finally, we examine spillover effects among banks. Our results suggest that the provision of ELA generated positive spillovers to other banks.

Keywords: Euro area financial crisis; Emergency Liquidity Assistance (ELA); European banks; spatial panel model (search for similar items in EconPapers)
JEL-codes: E3 G01 G14 G21 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The effect of emergency liquidity assistance (ELA) on bank lending during the euro area crisis (2020)
Working Paper: The effect of Emergency Liquidity Assistance (ELA) on bank lending during the euro area crisis (2020)
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