Bank risk and monetary policy

We find evidence of a bank lending channel for the euro area operating via bank risk.Financial innovation and the new ways to transfer credit risk have tended to diminishthe informational content of standard bank balance-sheet indicators. We show thatbank risk conditions, as perceived by financial market investors, need to be considered,together with the other indicators (i.e. size, liquidity and capitalization), traditionallyused in the bank lending channel literature to assess a bank’s ability and willingness tosupply new loans. Using a large sample...