Abstract:
The present paper utilizes AnaCredit loan-level data to examine the impact of regional loan market structure on lending rates. The analysis focuses on newly issued loans to small non-financial corporations in the euro area during the monetary policy tightening phase of 2022 and 2023. The findings suggest that banks tend to charge higher lending rates when they possess larger regional market shares. This outcome is driven by differences between banks rather than by individual banks adjusting their lending rates to regional market conditions. Overall, there is no strong evidence that market power conveyed by higher regional market concentration impeded the transmission of the monetary policy tightening to lending rates. If anything, there are indications that this type of market power may hinder the short-term pass-through of the unexpected component of monetary policy.
