BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 17/2013:
Does bank competition influence the lending channel in the euro area?
Zuzana Fungácová ()
, Laura Solanko ()
and Laurent Weill ()
Abstract: This paper examines how bank competition influences the
bank lending channel in the Euro area countries. Using a large panel of
banks from 12 euro area countries over the period 2002-2010 we analyze the
reaction of loan supply to monetary policy actions depending on the degree
of bank competition. We find that the effect of monetary policy on bank
lending is dependent on bank competition: the transmission of monetary
policy through the bank lending channel is less pronounced for banks with
extensive market power. Further investigation shows that banks with less
market power were more sensitive to monetary policy only before the
financial crisis. These results suggest that the bank market power has a
significant impact on monetary policy effectiveness. Therefore, wide
variations in the level of bank market power may lead to asymmetric effects
of a single monetary policy.
Keywords: bank competition; bank lending channel; monetary policy; euro area; (follow links to similar papers)
JEL-Codes: E52; G21; (follow links to similar papers)
32 pages, June 25, 2013
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- This paper is published as:
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Fungácová, Zuzana, Laura Solanko and Laurent Weill, (2014), 'Does competition influence the bank lending channel in the euro area?', Journal of Banking & Finance, Vol. 49, December, pages 356-366
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