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
Additional contact information
Desislava C. Andreeva: European Central Bank

No 1903, Working Papers from Banco de España

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: E52 E58 G21 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2019-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-com, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.bde.es/f/webbde/SES/Secciones/Publicac ... /19/Fich/dt1903e.pdf First version, February 2019 (application/pdf)

Related works:
Journal Article: The impact of the ECB's targeted long-term refinancing operations on banks’ lending policies: The role of competition (2021)
Working Paper: The impact of the ECB’s targeted long-term refinancing operations on banks’ lending policies: the role of competition (2020)
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:bde:wpaper:1903

Access Statistics for this paper

More papers in Working Papers from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().