The Central Bank of Latvia published Working Paper 6/2025 by Konrad Kuhmann examining how banks’ specialization in lending to particular industries and borrower sizes affects the transmission of euro area monetary policy to credit. Using granular euro area loan data, the paper finds a substantial degree of bank specialization and links higher specialization to generally more favorable lending conditions. It also concludes that specialized banks partly insulate their preferred borrower groups from monetary policy changes by adjusting interest rates and lending volumes less strongly for those groups, with implications for both aggregate and distributional outcomes of monetary policy.
Central Bank of Latvia 2025-09-29
Central Bank of Latvia publishes research on how bank specialization weakens euro area monetary policy pass-through for preferred borrowers
The Central Bank of Latvia released Working Paper 6/2025, analyzing how banks' specialization in lending impacts euro area monetary policy transmission. The study reveals that higher specialization leads to more favorable lending conditions and that specialized banks partially shield preferred borrowers from policy changes by moderating interest rate and lending volume adjustments.