Why are euro area banks' credit standards still tight?

Lending to households and non-financial corporations has been sluggish and credit standards have continued to be tight in many euro area countries. In June 2014, the Governing Council of the ECB decided to support bank lending to the corporate sector by pledging to commence a series of targeted longer-term refinancing operations. Although the significance of the banking sector in the transmission of monetary policy to the real economy is considerable, the factors behind changes in banks' credit standards in the euro area have not been empirically analysed. With the help of the ECB's Bank Lending Survey, a survey of bank lending and credit demand in the euro area, this article examines to what extent the changes in the terms of credit for corporate loans are due to supply and demand factors, how the size of a company applying for credit affects the terms applied and how the situation in stressed countries differs from that in other euro area countries.