Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262093 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 149
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
This paper studies how banks' balance sheets and funding costs interact in the transmission of monetary-policy rates to banks' credit supply to firms. To do so, we use creditregistry data from Germany and Portugal together with the European Central Bank's policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks' funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks' financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks' funding costs reduces their ability to lever up and weakens their lending standards.
Subjects: 
transmission of monetary policy
bank lending
bank risk taking
bank balance sheets
euro-area heterogeneity
JEL: 
E44
E52
E58
E63
F45
G20
G21
Document Type: 
Working Paper

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