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What information does the euro area bank lending survey provide on future loan developments?

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Monday, January 16, 2023
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The *euro area bank lending survey (BLS) * provides valuable information on bank lending standards and conditions as well as on loan demand in the euro area.

Key Points: 
  • The *euro area bank lending survey (BLS) * provides valuable information on bank lending standards and conditions as well as on loan demand in the euro area.
  • *By collecting this information, the survey sheds light on the transmission of monetary policy in the euro area via the bank lending channel.
  • While the survey information is qualitative, the replies of the banks are closely related to actual loan growth and lending rate developments.
  • *BLS data provide timely information on bank lending conditions and loan demand.
  • The short reporting lag compared with other statistical data means that BLS data provide early information on key lending developments in the euro area, which has been especially valuable for identifying turning points in lending conditions and assessing lending developments during exceptional periods.
  • [4] Overall, the BLS has proved to be a very useful tool for understanding and analysing bank lending conditions in the euro area.
  • A first indication of the information BLS indicators provide for future loan growth is to consider cross-correlations between BLS indicators at different leads relative to data on actual loan growth.
  • BLS indicators either lead loan growth (negative value on the y-axis) or lag loan growth (positive value).
  • Beyond the simple correlations mentioned above, the information that the BLS indicators provide on future loan growth can be assessed by analysing their value in forecasting actual loan growth.
  • Broadly corresponding evidence on the information that the BLS provides regarding future loan growth is also found for individual euro area countries.
  • The BLS contains information on future loan growth not only at the aggregate level, but also for individual banks.
  • Loan demand also helps predict future housing loan growth at the bank level – banks reporting a decrease in demand experience lower loan growth over the following quarters compared with banks reporting unchanged or increased loan demand (Chart D, panel b).

Monetary and macroprudential policies: trade-offs and interactions

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Friday, November 11, 2022
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Hence, macroprudential policies should be used appropriately to manage the balance between deeper recessions and longer-term benefits for economic growth.

Key Points: 
  • Hence, macroprudential policies should be used appropriately to manage the balance between deeper recessions and longer-term benefits for economic growth.
  • Generally, the instruments of monetary policy and macroprudential policy both operate through the financial system.
  • For instance, Van der Ghote (2021) argues that (conventional) monetary policy interventions and macroprudential policy interventions can both help to safeguard financial stability.
  • In this situation, the degree of monetary policy accommodation is key to smooth the negative effects of tighter macroprudential policy (see Chart 3).
  • Accommodative monetary policy is shown by the black solid line, a constrained monetary policy is shown by the red dashed line.
  • Macroprudential policy can also have an impact on the transmission of monetary policy.
  • The interaction of monetary policy and macroprudential policy also affects bank lending, resulting in strong complementarity between the two policies (see Altavilla, Laeven and Peydr, 2020).
  • The effects of monetary policy easing on bank lending and risk-taking are greater when macroprudential policy is accommodative and are particularly strong for less capitalised banks.
  • Overall, monetary and macroprudential policies cannot be considered in isolation, as their transmission channels give rise to significant spillovers.
  • The degree of monetary policy accommodation has an effect on the short-term impact of macroprudential policy and therefore on the macroprudential policy space.
  • Recent research developed within the ECB Research Task Force on monetary policy, macroprudential policy and financial stability shows that monetary and macroprudential authorities must take account of important trade-offs and interactions when deciding on policy actions.
  • Substantial progress has been made on developing practical frameworks of analysis to assess the costs and benefits of macroprudential and monetary policy interventions.