The Transmission Mechanism of Credit Support Policies in the Euro Area

In this ECMI Working Paper, the authors use a sample of 131 banks and find that the credit support policies of the Eurosystem (i.e. the ECB and the national central banks) have been successful in stimulating bank credit to the private sector. The impact appears to have been greater on the loan supply of smaller, less liquid, less capitalised banks and those more dependent on wholesale funding. The role of bank capital is, however, ambiguous. Besides the above mentioned favourable direct effect on loan supply, lower levels of bank capitalisation also mitigate the size, retail and liquidity effects of these policies. The low capital drag on the other channels was even dominant during the sample period.

Jef Boeckx and Maite De Sola Perea are Economists at the Research Department of the National Bank of Belgium; Gert Peersman is Professor of Economics at the Department of Financial Economics at Ghent University.