Evidence on the bank lending channel in Europe

This paper examines evidence for a bank lending channel in Europe. Following the approach suggested by Kishan and Opiela (2000) we use bank balance sheet data to estimate the response of bank lending to changes in monetary policy stance between 1991 and 1999. In particular, we classify banks according to asset size and capital strength to see if these factors have a significant impact on the lending channel. Using a panel data approach we find that across the EMU systems, undercapitalised banks (of any size) tend to respond more to change in policy.