address the following questions. How are macroeconomic shocks transmitted to bank risk and other banking variables? What are … the sources of bank heterogeneity, and what explains differences in individual banks’ responses to macroeconomic shocks …? Our paper has two main findings: (i) Average bank risk declines, and average bank lending increases following expansionary …

enhances the incentives of banks to expand within Euroland. Yet, while the currency bias in bank portfolios will be eliminated …