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The Bank Lending Channel : Lessons from the Crisis : BIS Working Paper

The Bank Lending Channel : Lessons from the Crisis : BIS Working Paper

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Research into the effects of Monetary Policy on Bank lending
Research into the effects of Monetary Policy on Bank lending

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Published by: creditplumber on May 02, 2011
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BIS Working Papers
No 345
The bank lending channel:Lessons from the crisis
by Leonardo Gambacorta and David Marques-Ibanez
Monetary and Economic Department
May 2011JEL classification: E51, E52, E44.Keywords: bank lending channel, monetary policy, financialinnovation.
 
 
BIS Working Papers are written by members of the Monetary and Economic Department ofthe Bank for International Settlements, and from time to time by other economists, and arepublished by the Bank. The papers are on subjects of topical interest and are technical incharacter. The views expressed in them are those of their authors and not necessarily theviews of the BIS.Copies of publications are available from:Bank for International SettlementsCommunicationsCH-4002 Basel, SwitzerlandE-mail: publications@bis.orgFax: +41 61 280 9100 and +41 61 280 8100This publication is available on the BIS website (www.bis.org). © 
Bank for In ternational Settlements 2011. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated.
 ISSN 1020-0959 (print)ISBN 1682-7678 (online)
ii
 
The bank lending channel:Lessons from the crisis
Leonardo Gambacorta
1
and David Marques-Ibanez
2
 
Summary
The 2007-2010 financial crisis highlighted the central role of financial intermediaries’ stabilityin buttressing a smooth transmission of credit to borrowers. While results from the years priorto the crisis often cast doubts on the strength of the bank lending channel, recent evidenceshows that bank-specific characteristics can have a large impact on the provision of credit.We show that new factors, such as changes in banks’ business models and market fundingpatterns, had modified the monetary transmission mechanism in Europe and in the US priorto the crisis, and demonstrate the existence of structural changes during the period offinancial crisis. Banks with weaker core capital positions, greater dependence on marketfunding and on non-interest sources of income restricted the loan supply more stronglyduring the crisis period. These findings support the Basel III focus on banks’ core capital andon funding liquidity risks. They also call for a more forward-looking approach to the statisticaldata coverage of the banking sector by central banks. In particular, there should be astronger focus on monitoring those financial factors that are likely to influence the functioningof the monetary transmission mechanism particularly in a period of crisis.
JEL classification: E51, E52, E44.Keywords: bank lending channel, monetary policy, financial innovation.
1
Bank for International Settlements (BIS); email: Leonardo.Gambacorta@bis.org
2
European Central Bank (ECB); email: David.Marques@ecb.int.This paper has been published in
Economic Policy 
(Vol. 26, April 2011). We would like to thank the Editor(Philippe Martin), Michael Haliassos, Luigi Spaventa and two anonymous referees for their very insightfulcomments and suggestions. We would also like to thank Claudio Borio, Francesco Drudi, Gabriel Fagan,Michael King, Petra Gerlach-Kristen, Philipp Hartmann, Andres Manzanares, Huw Pill, Steven Ongena,Flemming Würtz and participants at the 52nd Panel Meeting of Economic Policy and at a BIS seminar foruseful comments and discussions. The opinions expressed in this paper are those of the authors only and arein no way the responsibility of the BIS or the ECB.iii
 

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