The European Central Bank published research analysing about seven million new bank loans to non-financial corporations in 2022-23 and concludes that the maturity of the risk-free rate used to price a loan is a key driver of its short-term sensitivity to ECB rate changes, beyond the usual fixed-rate versus floating-rate classification. Where new loans are priced off shorter-maturity overnight interest rate swap (OIS) rates, lending rates rose more sharply during the tightening cycle, while banks partly offset this through adjustments in the premia charged over the relevant risk-free rate. Using AnaCredit loan-level data, the study decomposes each lending rate into a “relevant risk-free rate” (the OIS rate matching the loan’s maturity for fixed-rate loans, or the OIS maturity corresponding to the reference rate at origination for floating-rate loans) and a residual premium. It documents wide cross-country differences in the maturity of these relevant risk-free rates, averaging around six months in Latvia and Ireland but often exceeding five years in the Netherlands, Malta and France. A “before-and-after” comparison (first quarter of 2022 versus fourth quarter of 2023) finds that most of the rise in lending rates was driven by increases in relevant risk-free rates, with 11 countries seeing rises of more than 4 percentage points and Latvia and Estonia the highest at 4.37-4.41 percentage points, while the Netherlands and Malta recorded 2.85 percentage points. Event-time regressions around ECB Governing Council meetings also show stronger pass-through from changes in the deposit facility rate to lending rates when loans are priced off shorter-maturity risk-free rates, with smaller premium increases on those loans partially smoothing differences in overall pass-through.
European Central Bank 2025-10-09
European Central Bank research finds loan pricing reference rate maturity drives cross-country differences in monetary policy pass-through
The European Central Bank's research on about seven million new bank loans to non-financial corporations in 2022-23 highlights the impact of risk-free rate maturity on loan sensitivity to ECB rate changes. Loans priced off shorter-maturity overnight interest rate swap rates saw sharper lending rate increases during the tightening cycle, with banks adjusting premia to mitigate this effect. The study also reveals substantial cross-country differences in the maturity of relevant risk-free rates, influencing the pass-through of ECB rate changes to lending rates.