The bank lending channel of unconventional monetary policy: the impact of the VLTROs on credit supply in Spain

Miguel Garcia-Posada and Marcos Marchetti ()
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Marcos Marchetti: Banco de España

No 1512, Working Papers from Banco de España

Abstract: We assess the impact on the credit supply to non-financial corporations of the two verylong-term refinancing operations (VLTROs) conducted by the Eurosystem in December 2011 and February 2012 for the case of Spain. To do so we use bank-firm level information from a sample of more than one million lending relationships over two years. Our methodology tackles the two main identification challenges: (i) how to disentangle credit supply from demand; and (ii) the endogeneity of VLTRO bids, as banks with more deteriorated funding conditions were more likely both to ask for a large amount of funds and to restrict credit supply. First, we exploit the fact that many firms simultaneously borrow from several banks to effectively control for firm-specific credit demand. Second, we exhaustively control for banks’ funding difficulties by constructing several measures of balance-sheet strength and by including bank fixed effects. Our findings suggest that the VLTROs had a positive moderately-sized effect on the supply of bank credit to firms, providing evidence of a bank lending channel in the context of unconventional monetary policy. We also find that the effect was greater for illiquid banks and that it was driven by credit to SMEs, as there was no impact on loans to large firms.

Keywords: unconventional monetary policy; VLTRO; credit supply; bank lending channel. (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: The bank lending channel of unconventional monetary policy: The impact of the VLTROs on credit supply in Spain (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1512

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