The Impact of Unconventional Monetary Policy on Major European Banks' Interest Spreads

Abstract

In this paper, we analyze the effects of the unconventional monetary policy measures (UMP) of the European Central Bank on private sector spreads and loan and deposit interest rates by using a monthly-bank level dataset of 300 large euro area banks. As proposed by the standard literature, we estimate dynamic panel models to measure the influence of the expanded asset purchasing programmes on the private interest spread. Second, we estimate the spreads for non-financial corporates and household in a panel vector autoregression model to see if the UMP has led to sector specific differences. In the view of recent theoretical and empirical developments, we disentangle the interest spreads into loan and deposit rates and provide further empirical evidence that the UMP has decreased banks' interest income.

Keywords: Monetary policy transmission, bank interest spreads, unconventional monetary policy, panel vector autoregression

JEL Classification: E43, E44, E58, F42, G20