The impact of unconventional monetary policies on retail lending and deposit rates in the euro area

BIS Working Papers  |  No 850  | 
31 March 2020
by Boris Hofmann, Anamaria Illes, Marco Jacopo Lombardi and Paul Mizen
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Focus

This paper analyses the impact of the ECB's unconventional monetary policy measures, as launched between 2008 and 2019, on retail lending and deposit rates as well as on banks' retail lending-deposit rate spreads in the four major euro area countries.

Contribution

We use an analytical approach that combines the estimation of the cumulative effects of unconventional monetary policy measures via event study analysis with retail rate pass-through estimation. That way, we assess the full effect of the ECB's unconventional monetary policies implemented between 2008 and 2019 on retail lending and deposit rates and systematically explore differences in their effects across the four major euro area countries.

Findings

Our results show that the ECB's unconventional monetary policy measures - particularly those launched since 2012 - significantly lowered retail lending and deposit rates in Germany, France, Spain and particularly in Italy. The impact on banks' intermediation margins through retail lending-deposit rate spreads turns out not to be clear-cut, with significant compressions prevailing only in Germany and Italy.

Abstract

This paper investigates the overall effect of the European Central Bank's (ECB's) unconventional monetary policies (UMPs) implemented since 2008 on euro area bank retail lending and deposit rates offered to households and non-financial corporations. To do so, we use an analytical approach that combines the estimation of the cumulative effects of UMP on key money and capital market rates via daily event study analysis with monthly retail rate pass-through estimation. In counterfactual simulations, we quantify the full effect of the ECB's UMPs implemented since 2008 on retail lending and deposit rates and systematically explore differences in their effects over time and across euro area countries. Our results show that the ECB's UMPs - particularly the measures launched since 2012 - significantly lowered retail lending and deposit rates in Germany, France, Spain and in particular in Italy. The impact on banks' intermediation margins through retail lending-deposit rate spreads turns out to be not clear-cut, with significant compressions prevailing only in Germany and Italy.

JEL classification: E43, E52, G21

Keywords: retail rates, pass-through, unconventional monetary policy, European Central Bank