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- 21 August 2024
- WORKING PAPER SERIES - No. 2975Details
- Abstract
- Using a novel dataset linking firm level data from the Survey on Access to Finance of Enterprises (SAFE) and bank level data from the Bank Lending Survey (BLS), we explore how changes in credit standards pass through to firms at a granular level. We find that tighter credit standards decrease loan availability reported by firms, increase the likelihood they report access to finance as the worst problem and decrease their investment. After controlling for country-sector-time fixed effects that capture cyclical macroeconomic conditions, effects only remain for firms that need finance. Moreover, we find that a more diversified funding base insulates firms from the negative impacts of tighter credit standards on availability of bank loans and access to finance, although there is little evidence of such an effect forinvestment. Effects are asymmetric, with stronger impacts recorded for a tightening than an easing. Our results underscore the importance of demand conditions when interpreting the credit conditions and we thus propose a new indicator of demand adjusted credit standards at a euro area level, which can be used to analyse broader credit dynamics.
- JEL Code
- D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 9 November 2023
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 7, 2023Details
- Abstract
- Since its launch in 2003, the euro area bank lending survey (BLS) has provided valuable early indications for the assessment of bank lending conditions in the euro area. This article reviews the role of the BLS at the ECB over the last 20 years. It highlights that past periods are informative for a better understanding of bank lending conditions in the current monetary policy tightening period and the changing environment in which banks operate. The article also points to the value of the BLS for analysing the impact of unconventional monetary policy measures on bank lending in the euro area, as well as the impact of other measures from supervisory and fiscal authorities. It highlights that both credit risk factors and banks’ balance sheet situation play an important role in the transmission of monetary policy to bank lending conditions, while their actual tightening contribution has varied across historical periods. The article also highlights current challenges facing euro area banks and the need to monitor possible vulnerabilities which may affect the transmission of monetary policy via banks.
- JEL Code
- E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 26 September 2023
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 6, 2023Details
- Abstract
- Banks distribute capital to equity investors either by paying dividends or by buying back shares. Such distributions of capital have ambiguous implications for monetary policy, since these lower banks’ cost of equity by signalling their soundness to investors but also reduce banks’ capital ratios and thus potentially their intermediation capacity. Since the end of the pandemic and the end of ECB Banking Supervision’s recommendation to refrain from or limit payouts, banks in the euro area have distributed capital at a rapid pace. Such distributions have been spearheaded by ambitious buyback programmes, catching up on forgone distributions in previous years, while a further increase in dividends is also likely. Payouts vary greatly across banks in terms of both overall size and composition. Individual banks tend to distribute more capital when they are more profitable and have better asset quality, capital ratios above their announced targets and more liquidity. They also tend to spread distributions over several years. We find that recent payouts have had a positive signalling effect on financial markets. Higher payout commitments have also been associated with lower bank credit supply and higher lending rates, therefore possibly contributing to the transmission of the ECB’s monetary policy tightening impulse so far.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G35 : Financial Economics→Corporate Finance and Governance→Payout Policy