The Central Bank of Latvia published working paper 6/2025 by Konrad Kuhmann assessing how bank specialization affects the transmission of euro area monetary policy to credit, using granular euro area loan data. The paper finds that euro area bank lending is substantially specialized, with banks tending to be over-exposed to borrowers in particular industries and of particular sizes. Higher specialization is generally associated with more favorable lending conditions, and banks partly insulate their preferred borrower groups from monetary policy by adjusting interest rates and lending relatively less for the borrowers in the groups in which they specialize, with implications for both aggregate and distributional effects of monetary policy.
Central Bank of Latvia 2025-09-29
Central Bank of Latvia publishes working paper on how bank specialization dampens monetary policy pass-through to preferred borrowers
The Central Bank of Latvia released a working paper analyzing how bank specialization influences the transmission of euro area monetary policy to credit. The study reveals that highly specialized banks offer more favorable lending conditions and partially shield preferred borrower groups from monetary policy impacts by adjusting interest rates and lending volumes. This has significant implications for the aggregate and distributional effects of monetary policy.