Does Lack of Financial Stability Impair the Transmission of Monetary Policy?

Viral V. Acharya, Björn Imbierowicz, Sascha Steffen, Daniel Teichmann

Research output: Contribution to conferencePaperResearch


We investigate the transmission of central bank liquidity to bank deposit and loan spreads in Europe over the January 2006 to June 2010 period. When the European Central Bank (ECB) allocated liquidity to banks in a competitive tender at the beginning of the crisis, higher “aggregate” central bank liquidity (i.e. the total liquidity in the banking system that is held at the ECB) reduces bank deposit rates of low risk banks but has no effect on deposit rates of high risk banks or on corporate loan spreads of high or low risk banks. After the ECB started to fully allot all liquidity requested by banks via its refinancing operations on October 8, 2008, an increase in liquidity decreases deposit rates of both high and low risk banks. While loan spreads of low risk banks decrease, those of high risk banks remain unchanged also under full allotment of liquidity. We find that borrowers of high risk banks refinance term loans drawing down loan commitments. They have lower payouts, lower capital expenditures and lower asset growth compared with borrowers of low risk banks. Our results suggest a differential transmission of central bank liquidity of low versus high risk banks, and an impaired transmission to corporate borrowers of high risk banks.
Original languageEnglish
Publication date2015
Number of pages66
Publication statusPublished - 2015
EventFinancial Intermediaries and the Real Economy: One Year after European Banking Union Take-off - Frankfurt am Main, Germany
Duration: 28 Sept 201529 Sept 2015


ConferenceFinancial Intermediaries and the Real Economy
CityFrankfurt am Main
Internet address


  • Central bank liquidity
  • Corporate deposits
  • ECB
  • Financial crisis
  • Loans

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