The interest rate in the second series of ECB targeted longer-term refinancing operations is conditional on a participant-specific lending benchmark. The restrictiveness of this benchmark varies between banks. We employ fixed effects estimations on a unique micro-dataset and investigate the relationship between the benchmark restrictiveness and net bank lending. We find that a more restrictive benchmark is associated with more total net lending and net lending to non-financial corporates by relatively large banks. Banks that are relatively large and face the most restrictive benchmark increase their lending to the real economy with 9 to 17 percent. We find no significant effects on net lending by relatively small banks. Furthermore, the restrictiveness of the benchmark does not affect net lending to households. Our findings suggest that the design of targeted lending benchmarks influences bank credit flows and that a more binding benchmark would have been even more effective in stimulating bank lending.
Keywords: TLTRO, monetary policy, refinancing operations, credit easing, bank credit.
JEL classifications: C23, E51, E58, G21.
Working paper no. 631