Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153993
Authors: 
Maddaloni, Angela
Peydró, José-Luis
Year of Publication: 
2013
Series/Report no.: 
ECB Working Paper 1560
Abstract: 
We analyze the impact on lending standards of short-term interest rates and macroprudential policy before the 2008 crisis, and of the provision of central bank liquidity during the crisis. Exploiting the euro area institutional setting for monetary and prudential policy and using the Bank Lending Survey, we show that in the period prior to the crisis, in an environment of low monetary policy interest rates, bank lending conditions unrelated to borrowers’ risk were softened. During the same period, we also provide some suggestive evidence of excessive risktaking for mortgages loans. At the same time, we show that the impact of low monetary policy rates on the softening of standards may be reduced by more stringent prudential policies on either bank capital or loan-to-value ratios. After the start of the 2008 crisis, we find that low monetary rates helped to soften lending conditions that were tightened because of bank capital and liquidity constraints, especially for business loans. Importantly, this softening effect is stronger for banks that borrow more long-term liquidity from the Eurosystem. Therefore, the results suggest that monetary policy rates and central bank provision of long-term liquidity complement each other in working against a possible credit crunch for firms.
Subjects: 
banking stability
Macroprudential policy
monetary policy
JEL: 
E51
E52
E58
G01
G21
G28
Document Type: 
Working Paper

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