Bank Market Power and Monetary Policy Transmission: Evidence from Loan-Level Data

N. Ivanova, S. Popova, K. Styrin

This paper asks the following questions. How does market structure reshape the transmission of monetary policy to bank lending? How are loan characteristics such as loan volume, maturity, lending rate, risk, and the extensive margin of lending affected? Is there a trade-off between financial stability and the strength of monetary transmission? We find that, on more concentrated markets, the effect of monetary policy on lending rate and risk taking is amplified whereas the effect on loan volume is muted. Our findings imply the existence of a trade-off between the strength of monetary policy transmission and financial stability.

Bank Market Power and Monetary Policy Transmission: Evidence from Loan-Level Data