Paying banks to lend? Evidence from the Eurosystem’s TLTRO and the euro area credit registry

Abstract

Since March 2020 the Eurosystem has provided conditional subsidies to some Euro Area banks, via the new terms of its Targeted Longer-Term Refinancing Operations (TLTRO). Under this program, banks can borrow from the Eurosystem at a rate as low as -1%, conditional on their lending performance to the real economy. By keeping the borrowed funds on their central bank accounts at -0.5%, banks can earn a 50 basis points profit, a significant margin by money market standards. This paper uses the new Euro-Area credit registry data (AnaCredit) to assess the effectiveness of this measure. To overcome reverse causality, we use a novel identification strategies based on the cut-off dates set before the pandemic and unexpected changes of parameters. We find a significant effect of TLTRO on credit supply.