The effects of the ECB’s unconventional monetary policies from 2011 to 2018 on banking assets

Abstract

We examine the effects of all three major European Central Bank (ECB) unconventional monetary policies since 2011 for euro area banks’ holdings of loans, government securities and cash deposited in central banks. The three ECB’s policies are long-term refinancing operations (LTROs), asset purchase programs and the ECB’s interest rate at its deposit facility. We also compare the responses of non-crisis and crisis countries to these policies. Our evidence indicates that the ECB’s unconventional monetary policy measures increased bank loans across the euro area countries. The second round of LTROs, also known as targeted LTROs (TLTROs), conditioned additional lending on banks. This change had substantially larger effect on total lending by banks. The computed effects of the average sizes of LTROs and TLTROs indicate that in non-crisis countries, LTROs increased bank loans by 7.6 % of assets and TLTROs increased bank loans by 16.4 % of assets; the increases were 8.4 % and 14.6 % for LTROs and TLTROs, respectively, in crisis countries. We find that both LTROs and TLTROs were associated with decreases in government securities held by banks in non-crisis countries while the LTROs was associated with increases in government securities held by banks in crisis countries.