The bank lending channel:Lessons from the crisis
and David Marques-Ibanez
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.
Bank for International Settlements (BIS); email: Leonardo.Gambacorta@bis.org
European Central Bank (ECB); email: David.Marques@ecb.int.This paper has been published in
(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