Effects of Long-Term Liquidity Provisions on Bank Loan Supply: A Euro Area Review

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Journal Title
Journal ISSN
Volume Title
School of Business | Bachelor's thesis
Date
2021
Major/Subject
Mcode
Degree programme
Taloustiede
Language
en
Pages
22+3
Series
Abstract
Following the financial and sovereign debt crises, the European Central Bank has implemented a variety of unconventional monetary policy measures to maintain financial stability, among other mandated aims. One such measure are the long-term refinancing operations, both non-targeted and targeted. These operations have been undertaken with the aim of stimulating the credit supply from commercial banks. This literature review seeks to evaluate the effect these operations have had on loan supply in the euro area. A variant of the Monti-Klein model of banking is introduced from the literature, and a hypothesis is formed. The findings of the empirical literature are then evaluated against this hypothesis before forming an answer to the research question of this review. It is found that these long-term refinancing measures undertaken by the European Central Bank have broadly succeeded in their main aims: loan supply has increased as measured across the euro area, as well as in individual countries within. The positive shift in loan supply is observed as increased probabilities of favorable lending conditions, and as increased volumes of credit. These increases in lending have been heterogeneous by country, bank, and bank customer characteristics.
Description
Thesis advisor
Murto, Pauli
Välimäki, Juuso
Keywords
bank lending channel, central banking, financial crisis, loan supply, LTRO, monetary policy, TLTRO
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