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Does competition influence the bank lending channel in the euro area?
Institution:1. Bank of Finland, Bank of Finland Institute for Economies in Transition (BOFIT), Snellmaninaukio, PO Box 160, FI-00101 Helsinki, Finland;2. EM Strasbourg Business School, University of Strasbourg, 47 avenue de la Forêt Noire, 67082 Strasbourg Cedex, France;3. Institute of Economic Studies, Charles University in Prague, Czech Republic;1. CentER, Netspar, Tilburg University, Warandelaan 2, Tilburg, The Netherlands;2. Ghent University, W. Wilsonplein 5D, 9000 Ghent, Belgium;3. CentER, European Banking Center, Tilburg University, Warandelaan 2, Tilburg, The Netherlands;1. College of Geosciences, China University of Petroleum-Beijing, Beijing 102249, China;2. Hangzhou Research Institute of Geology, PetroChina, Hangzhou 310023, China;3. CNPC Chuanqing Drilling Engineering Company Limited, Xi''an, Shaanxi 710018, China;1. Centre National de la Recherche Scientifique et Technologique, INERA, Département Environnement et Forêts, 03 BP 7047, Ouagadougou 03, Burkina Faso;2. World Agroforestry Centre (ICRAF), West and Central Africa Regional Office –Sahel Node, BP E5118, Bamako, Mali;3. Unité de Formation et de Recherche en Sciences de la Vie et de la Terre, Laboratoire de Biologie et Ecologie Végétales (UFR/SVT), Université Ouaga I Pr Joseph Ki-Zerbo, 09 BP 848 Ouagadougou 09, Burkina Faso;1. CAS Key Laboratory of Marine Ecology and Environmental Sciences, Institute of Oceanology, Chinese Academy of Sciences, Qingdao, 266071, China;2. Laboratory for Marine Ecology and Environmental Science, Qingdao National Laboratory for Marine Science and Technology, Qingdao, 266237, China;3. University of Chinese Academy of Sciences, Beijing, 100049, China;4. Center for Ocean Mega-Science, Chinese Academy of Sciences, Qingdao, 266071, China;5. Yellow River Delta National Nature Reserve Management Bureau, Dongying, 257200, China;6. Second Institute of Oceanography, Ministry of Natural Resources (MNR), Hangzhou, 310012, China;7. Key Laboratory of Marine Ecosystem and Biogeochemistry, State Oceanic Administration (SOA), Hangzhou, 310012, China;1. State Key Laboratory of Enhanced Oil Recovery, Beijing 100083, China;2. PetroChina Research Institute of Petroleum Exploration & Development, Beijing 100083, China;3. College of Petroleum Engineering, China University of Petroleum, Beijing 102249, China
Abstract:This paper examines how competition influences the bank lending channel in the euro area countries. Using a large panel of banks from 12 euro area countries for the period 2002–2010 we analyze the reaction of loan supply to monetary policy actions depending on the degree of bank competition. We find that the effect of monetary policy on bank lending is dependent on bank competition: the transmission of monetary policy via the bank lending channel is less pronounced for banks with extensive market power. Further investigation shows that banks with less market power were more sensitive to monetary policy only before the financial crisis. These results suggest that bank market power has a significant impact on the effectiveness of monetary policy. Therefore, wide variations in the level of bank market power may lead to asymmetric effects of the single monetary policy.
Keywords:Bank competition  Bank lending channel  Monetary policy  Euro area
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