The Impact of the ECB’s Targeted Long-Term Refinancing Operations on Banks’ Lending Policies: The Role of Competition

Abstract

This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

Monetary Policy and Bank Stability: The Analytical Toolbox Reviewed

“…While these raw data are indicative of the effectiveness of the programmes, casual effects are documented in a number of papers focusing on such operations. Andreeva and García-Posada (2019) confirm the expansionary impact of TLTROs on lending policies, relying on self-reported bank-level information on exposure to TLTROs obtained from the euro area bank lending survey. Benetton and Fantino (2018), based on loan-level data on lending relationships in Italy, conclude that TLTRO I has brought about a compression of rates of 20 basis points applied on new loans to firms.…”

The Effects of the ECB's Pandemic-Related Monetary Policy Measures

“…This property ensures that banks use the central bank funding for bank lending rather than buying, for example, government debt. Empirical evidence about the effects on bank lending is provided, amongst others, by Benetton and Fantino (2021), Laine (2021) and Andreeva and García-Posada (2021).…”

“…Because the participating banks demand less market-based funding, the bank bond yields of participants and non-participants decline. However, the indirect effect on bank lending of non-participating banks is ambiguous (Andreeva and García-Posada, 2021). On the one hand, the lower funding costs support bank lending.…”

Who Takes the Ecb's Targeted Funding?

“…That impact did not prevent that credit growth underwent a significant correction in those countries, but the operations are broadly seen to have helped preventing an outright credit crunch where liquidity constrained banks see themselves forced to deleverage and enter a downward spiral. Andreeva and García-Posada (2019) study responses to the ECB's bank lending survey to assess the TLTROs and find that margins of loans to relatively safe borrowers are adjusted 4 See e.g. Bindseil et al (2004), Bruno et al (2005), Cassola et al (2013), Craig and Fecht (2007), Craig et al (2015), Eisenschmidt et al (2009), Eisenschmidt and Holthausen (2010), Ewerhart et al (2010), Fecht et al (2011), Linzert et al (2005, Linzert et al (2007), Nautz and Oechssler (2003).…”

“…See ECB (2015b),Churm et al (2015) andAndreeva and García-Posada (2019) for early views on the macroeconomic impact.ECB Working Paper Series No 2439 / July 2020…”