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Rollover Risk and Bank Lending Behavior: Evidence from Unconventional Central Bank Liquidity

Author

Listed:
  • Martina Jasova

    (Princeton University)

  • Caterina Mendicino

    (European Central Bank)

  • Dominik Supera

    (Wharton School, University of Pennsylvania)

Abstract
How does a sudden extension of bank debt maturity affect bank lending in times of crisis? We use the provision of long-term funding by the 2011 European Central Bank's (ECB) very long-term refinancing operations (vLTRO) as a natural experiment to address this question. Our analysis employs a novel dataset that matches the ECB monetary policy and market operations data with the firm credit registry and banks' security holdings in Portugal. We show that lengthening of bank debt maturity in crisis times has a positive and economically sizable impact on bank lending to the real economy. The effects are stronger on the supply of credit to smaller, younger, riskier firms and firms with shorter lending relationships. We also find that loan-level results translate to real and credit effects at the rm level. Finally, we discuss policy side effects and show how the unrestricted liquidity provision provided incentives to banks to purchase more securities and partially substituted away from lending to the real economy.

Suggested Citation

  • Martina Jasova & Caterina Mendicino & Dominik Supera, 2018. "Rollover Risk and Bank Lending Behavior: Evidence from Unconventional Central Bank Liquidity," 2018 Meeting Papers 500, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:500
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    References listed on IDEAS

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    3. Ruishi Jiang & Jia Ruan, 2023. "Does Direct Monetary Policy Affect the Supply of Bank Credit to Small and Medium-Sized Enterprises? An Analysis Based on Chinese Data," Sustainability, MDPI, vol. 15(15), pages 1-19, July.
    4. Hartmann, Philipp & Smets, Frank, 2018. "The first twenty years of the European Central Bank: monetary policy," Working Paper Series 2219, European Central Bank.
    5. Nikolay Hristov & Oliver Hülsewig & Johann Scharler, 2021. "Unconventional Monetary Policy Shocks in the Euro Area and the Sovereign-Bank Nexus," International Journal of Central Banking, International Journal of Central Banking, vol. 17(3), pages 337-383, September.
    6. Albertazzi, Ugo & Burlon, Lorenzo & Pavanini, Nicola & Jankauskas, Tomas, 2020. "The (unobservable) value of central bank’s refinancing operations," Working Paper Series 2480, European Central Bank.
    7. Brantly Callaway & Weige Huang, 2020. "Distributional Effects of a Continuous Treatment with an Application on Intergenerational Mobility," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 808-842, August.
    8. Albertazzi, Ugo & Barbiero, Francesca & Marqués-Ibáñez, David & Popov, Alexander & Rodriguez d’Acri, Costanza & Vlassopoulos, Thomas, 2020. "Monetary policy and bank stability: the analytical toolbox reviewed," Working Paper Series 2377, European Central Bank.
    9. Christopher F Baum & Caterina Forti Grazzini & Dorothea Schäfer, 2020. "Institutional diversity in domestic banking sectors and bank stability: A cross-country study," Boston College Working Papers in Economics 1008, Boston College Department of Economics.
    10. Accetturo, Antonio & Barboni, Giorgia & Cascarano, Michele & Garcia-Appendini, Emilia & Tomasi, Marco, 2022. "Credit supply and green Investments," CAGE Online Working Paper Series 615, Competitive Advantage in the Global Economy (CAGE).
    11. Legroux, Vincent & Rahmouni-Rousseau, Imène & Szczerbowicz, Urszula & Valla, Natacha, 2022. "Stabilising virtues of central banks: (Re)matching bank liquidity," Journal of Banking & Finance, Elsevier, vol. 134(C).
    12. Toni Ahnert & Kartik Anand & Philipp Johann König, 2024. "Real Interest Rates, Bank Borrowing, and Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1545-1571, September.
    13. Lucia Esposito & Davide Fantino & Yeji Sung, 2020. "The impact of TLTRO2 on the Italian credit market: some econometric evidence," Temi di discussione (Economic working papers) 1264, Bank of Italy, Economic Research and International Relations Area.
    14. António Afonso & Joana Sousa‐Leite, 2020. "The transmission of unconventional monetary policy to bank credit supply: Evidence from the TLTRO," Manchester School, University of Manchester, vol. 88(S1), pages 151-171, September.
    15. Andreeva, Desislava C. & García-Posada, Miguel, 2021. "The impact of the ECB's targeted long-term refinancing operations on banks’ lending policies: The role of competition," Journal of Banking & Finance, Elsevier, vol. 122(C).
    16. Diana Bonfim & Luísa Farinha & Sónia Félix, 2019. "Credit and the economy: lessons from a decade of research at Banco de Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    17. Mark A. Carlson & Stefania D'Amico & Cristina Fuentes-Albero & Bernd Schlusche & Paul R. Wood, 2020. "Issues in the Use of the Balance Sheet Tool," Finance and Economics Discussion Series 2020-071, Board of Governors of the Federal Reserve System (U.S.).
    18. Claudia Kwapil & Kilian Rieder, 2021. "The effects of the monetary policy response to the COVID-19 pandemic: preliminary evidence from a pilot study using Austrian bank-level data," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/20-Q1/, pages 131-152.
    19. Joost Bats & Tom Hudepohl, 2019. "Impact of targeted credit easing by the ECB: Bank-level evidence," DNB Working Papers 631, Netherlands Central Bank, Research Department.
    20. Bednarek, Peter & Dinger, Valeriya & te Kaat, Daniel Marcel & von Westernhagen, Natalja, 2020. "Central bank funding and credit risk-taking," Discussion Papers 36/2020, Deutsche Bundesbank.
    21. Bednarek, Peter & Dinger, Valeriya & Kaat, Daniel Marcel te & Westernhagen, Natalja von, 2021. "To whom do banks channel central bank funds?," Journal of Banking & Finance, Elsevier, vol. 128(C).
    22. Camelia Minoiu & Rebecca Zarutskie & Andrei Zlate, 2021. "Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program," Finance and Economics Discussion Series 2021-078, Board of Governors of the Federal Reserve System (U.S.).
    23. Naqvi, Hassan & Pungaliya, Raunaq, 2023. "Bank size and the transmission of monetary policy: Revisiting the lending channel," Journal of Banking & Finance, Elsevier, vol. 146(C).

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