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Lenders’ asymmetric reaction to the ECB’s monetary policy: The case of the syndicated loan market

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Matthieu Picault
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We investigate the effectiveness of the bank lending channel, that is, whether, and if so how, the accommodative monetary policies of the European Central Bank (ECB) mitigated the disruption in bank lending between 2008 and 2014. We show that both standard and non-standard measures of the ECB's accommodating monetary policy alleviated banks' funding constraints, helping support their lending activities in the syndicated loan market. We highlight a cross-sectional asymmetry in the banks' responses to both measures. By differentiating banks according to their size, funding constraints, and financial strength, we find that lowering the EONIA increases loan amounts provided by large and less liquid banks while unconventional policies support effectively smaller and highly capitalized banks, as well as banks with a high deposits and short-term debt ratio, and weaker banks. After the 2008 shock, the standard measures quickly reached their limits, highlighting the need to develop new monetary policy tools to support the lending activities of banks that needed it the most, i.e., that are small and financially constrained. As such, we show that the ECB was successful in doing so, with the implementation of non-standard monetary policy tools significantly supporting the loan offer of these banks after the crisis.