The Transmission Mechanism of Credit Support Policies in the Euro Area. ECMI Working Paper No. 3, June 2017

Boeckx, Jef and De Sola Perea, Maite and Peersman, Gert (2017) The Transmission Mechanism of Credit Support Policies in the Euro Area. ECMI Working Paper No. 3, June 2017. [Working Paper]

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Abstract

Using a sample of 131 banks, we find that the Eurosystem's credit support policies have been successful in stimulating bank credit to the private sector: the impact was greater on the loan supply of smaller, less liquid, less capitalized banks and those more dependent on wholesale funding. The role of bank capital is, however, ambiguous. Besides the above favorable direct effect on loan supply, lower levels of bank capitalization at the same time mitigate the size, retail and liquidity effects of these policies. The low capital drag on the other channels has even been dominant during the sample period.

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