Banks’ funding structures and pass-through in the euro area

This paper investigates the interest rate pass-through of monetary policy in the euro area by focusing on the role of banks’ funding structures. We estimate the interest rate pass-through for loans to non-financial corporations using bank-level balance sheet data. In doing so, we interact the response of lending rates with characteristics of the funding structure, and show that banks that rely more on bond issuance than on the money market tend to be less responsive to policy changes. Finally, we test the presence of the asset-liability-management channel, and find that banks combining longer-term liabilities (higher bond shares) with longer rate fixation periods for loans (higher share of loans with fixed rates) exhibit the most muted lending rate response to policy shocks.