Paying Banks to Lend? Evidence from the Eurosystem's TLTRO and the Euro Area Credit Registry

Since March 2020 the Eurosystem has provided subsidies to Euro-Area banks, via its Targeted Longer-Term Refinancing Operations (TLTRO). Under this program, banks can borrow from the Eurosystem at a rate as low as -1%, conditional on their lending to the real economy. This paper uses a simple theoretical model to disentangle between so-called “targeted” and “profitability" channels. We test those channels on the new Euro-Area credit registry data (AnaCredit). To overcome reverse causality, we employ novel identification strategies based on TLTRO parameters set before the pandemic and unexpected changes afterward. We find support for both channels and conclude the targeted channel is stronger.