Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322054 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3043
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We investigate the interaction between monetary and macroprudential policy in affecting banks' lending and risk-taking behaviour using rich euro area credit registry data and exploiting a unique setting that combined a sharp and unexpected monetary tightening with a wave of macroprudential tightening initiated before. While, for the average bank, required capital buffer increases did not significantly reduce lending additionally during the monetary tightening, for those banks that became capital-constrained lending fell by about 1.3-1.8 percentage points more for existing credit relationships and new bank-firm relationships were 2.5-4.4 percentage points less likely to be established, both relative to better-capitalized banks. In addition, such banks were more reluctant to pass higher policy interest rates on to their borrowers and took fewer risks, with a greater reduction in the LTV ratio for newly originated loans, and less reliance on risky assets, such as commercial real estate, as collateral. Our analysis shows that when calibrating monetary and macroprudential policies, it is crucial to account for the effects of policy interactions and the role of bank heterogeneity.
Subjects: 
bank lending
risk-taking
macroprudential policy
monetary policy
financial risk
loan
risk management
euro area
JEL: 
E5
E51
G18
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7222-2
Document Type: 
Working Paper

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