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The impact of the ECB’s targeted long-term refinancing operations on banks’ lending policies: the role of competition

Desislava C. Andreeva and Miguel Garcia-Posada ()
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Desislava C. Andreeva: European Central Bank

No 1903, Working Papers from Banco de España, Working Papers Homepage

Abstract: We assess the impact of the Eurosystem’s Targeted Long-Term Refinancing Operations (TLTROs) on the lending policies of euro area banks. To guide our empirical research, we build a theoretical model in which banks compete à la Cournot in the credit and deposit markets. According to the model, we distinguish between direct and indirect effects. Direct effects take place because bidding banks expand their loan supply due to the lower marginal costs implied by the TLTROs. Indirect effects on non-bidders operate via changes in the competitive environment in banks’ credit and deposit markets and are a priori ambiguous. We then test these theoretical predictions with a sample of 130 banks from 13 countries and the confidential answers to the ECB’s Bank Lending Survey. Regarding direct effects on bidders, we find an easing impact on margins on loans to relatively safe borrowers, but no impact on credit standards. Regarding indirect effects, there is a positive impact on the loan supply on non-bidders but, contrary to the direct effects, the transmission of the TLTROs takes place through an easing of credit standards, and it is mainly concentrated in banks facing high competitive pressures. We also find evidence of positive funding externalities.

Keywords: unconventional monetary policy; TLTROs; lending policies; competition (search for similar items in EconPapers)
JEL-codes: G21 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-com, nep-eec, nep-mac and nep-mon
Date: 2019-02
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1903

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