Monetary transmission and bank lending in Germany

This paper analyses the role of bank lending in the monetary transmission process in Germany. We follow a sectoral approach by distinguishing corporate lending and household lending. We find that banks respond to a monetary contraction by adjusting their securities holdings, rather than reducing their loans portfolio. Most lending categories even show an increase following a monetary tightening. The main implication of our results is that a bank lending channel is not an important transmission mechanism. On the contrary, by insulating their loans portfolio from monetary shocks, banks are more likely to weaken than to strengthen the impact of monetary policy