The impact of the ECB´s targeted long-term refinancing operations on banks´ lending policies : the role of competition

El presente artículo evalúa el impacto de las operaciones de refinanciación a largo plazo con objetivo específico (TLTRO, por sus siglas en inglés) en las políticas crediticias de los bancos del área del euro. Para guiar la investigación empírica, construimos un modelo teórico en el que los bancos compiten a la Cournot en los mercados de crédito y depósito. Distinguimos entre efectos directos y efectos indirectos. Los efectos directos ocurren porque los bancos que participan en las TLTRO expanden su oferta de crédito gracias a los menores costes marginales que conllevan estas operaciones. Los efectos indirectos en los bancos que no participan operan a través de cambios en la estructura competitiva de los mercados de crédito y depósito, y su efecto es ambiguo a priori. Tras este análisis, examinamos estas predicciones teóricas con una muestra de 130 bancos de 13 países y las respuestas confidenciales a la Encuesta de Préstamos Bancarios del Banco Central Europeo. Respecto a los efectos directos, encontramos que las TLTRO contribuyeron a reducir los márgenes sobre préstamos relativamente seguros, pero que no tuvieron impacto en los criterios de aprobación de préstamos. Respecto a los efectos indirectos, la transmisión de las TLTRO tuvo lugar a través de la relajación de los criterios de aprobación de préstamos, y estuvo concentrada principalmente en los bancos expuestos a altas presiones competitivas. También hallamos evidencia de externalidades positivas en los mercados de financiaciónWe assess the impact of the Eurosystem’s Targeted Long-Term Refinancing Operations (TLTROs) on the lending policies of euro area banks. To guide our empirical research, we build a theoretical model in which banks compete à la Cournot in the credit and deposit markets. According to the model, we distinguish between direct and indirect effects. Direct effects take place because bidding banks expand their loan supply due to the lower marginal costs implied by the TLTROs. Indirect effects on non-bidders operate via changes in the competitive environment in banks’ credit and deposit markets and are a priori ambiguous. We then test these theoretical predictions with a sample of 130 banks from 13 countries and the confidential answers to the ECB’s Bank Lending Survey. Regarding direct effects on bidders, we find an easing impact on margins on loans to relatively safe borrowers, but no impact on credit standards. Regarding indirect effects, there is a positive impact on the loan supply on non-bidders but, contrary to the direct effects, the transmission of the TLTROs takes place through an easing of credit standards, and it is mainly concentrated in banks facing high competitive pressures. We also find evidence of positive funding externalitie

Euro area bank profitability and consolidation

Consolidation in the euro area banking sector has been slow since the end of the global financial crisis, despite the persistent weak bank profitability. The coronavirus (COVID-19) pandemic has reinforced profitability risks in the euro area banking sector, and coincided with worse performance of some banks, notably those burdened with legacy non-performing loans. Consolidation among banks may bring benefits from both a micro- and a macroprudential perspective by generating cost synergies, increasing revenue diversification and strengthening the resilience of the banking sector. However, it comes with attendant execution risks, which need to be properly managed by banks. Consolidation may give rise to competition concerns, although empirical evidence suggests that there is room for further domestic concentration in some euro area countries and for greater cross-border integration of the European banking market. Bank mergers also increase the systemic footprint of the resulting institutions, which might be addressed by the existing macroprudential and resolution frameworks. The European Central Bank assesses consolidation from a prudential perspective, focusing on the current and future ability of the combined bank to comply with prudential requirements. To this end, it published a Guide in January 2021 in which it clarified its expectations and approach to three key prudential issues arising in the context of consolidation: setting Pillar 2 capital requirements, treatment of badwill and use of internal models