Mending the Broken Link: Heterogeneous Bank Lending and Monetary Policy Pass-Through

Fabio Canova

2016-08-10 - We analyze the pass-through of monetary policy measures to firms and household lending rates in the euro area using a novel bank-level dataset. Capital adequacy, exposure to sovereign debt and magnitude of non-performing loans are responsible for the heterogeneity of passthrough to conventional monetary policy changes. The location of a bank is instead irrelevant. ECB non-standard measures normalized the capacity of banks to grant loans. Banks with high level of non-performing loans and low capital ratio were most affected. Banks’ lending were also affected. Policy implications are discussed.