The effect of TLTRO-II on bank lending

Abstract

This study estimates the effect of the European Central Bank’s second series of targeted longerterm refinancing operations (TLTRO-II) on bank lending using bank level data from multiple countries and instrumental variable estimation. Effects on corporate loans and loans for consumption are analysed separately. The cumulative effect of TLTRO-II on participating banks’ stock of corporate loans is estimated to be about 20 per cent. The effect on lending for consumption is found close to zero. The positive effects on corporate loans are found to be driven by crisis countries indicating that the effectiveness of monetary policy depends on the economic conditions. Additionally, the effect on government bond purchases is found negative. This result is very different from the earlier results regarding non-targeted liquidity operations.