The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data

where x is the overall average liquidity ratio (computed over all banks for the whole
sample period). From (7.5) we conclude that (7.4) allows one to account for periods of
general (positive or negative) excess liquidity for the banking sector as whole. This is a
very important issue in the Portuguese banking system, as we will see below.

For expository purposes let us take the model in column (3) of Table 5. The fact that
the coefficient on ln(D/ P) _it z_it is positive means that the coefficient on deposits is lower
for small banks and so in the Portuguese case the supply of loans of small banks is less
deposit dependent than that of large banks. In other words, everything else equal, we
would conclude that the credit channel is less important for small banks. This conclusion
runs against to what one could expect according to economic theory.

As shown in section 3, one cannot, in general, conclude on the relative importance of
the credit channel just by looking at the coefficient of deposits, because the importance of
the credit channel also depends on the slope of the supply curve that is on the coefficient
of l_t . So, if we allow for a changing coefficient on deposits according to bank size, we
must also allow for a changing coefficient of the loans interest rate, l_t , according to size
(and similarly for the coefficient of s_t ). In other words, in terms of equation (7.2), to
conclude on the relative magnitude of the credit channel for two different banks one has to
look not only at the coefficient of ln(D/ P) _it z_it , β₂ , but also at the coefficient of l_tz_it,
β₆ , as the effect of a decrease in the coefficient of deposits could be offset by an increase
on the coefficient of the loans-interest rate, and vice versa.

In our case it turns out that the coefficients on the interaction terms l_t z_it and s_t z_it are
both not statistically different from zero and so, we may definitely conclude that small
Portuguese banks are less dependent on deposits than large banks or, in other words, the
credit channel appears to be less important for small banks³¹. We recognise that the lack of
evidence of larger non-deposit external financing costs for smaller banks does not come as
a large surprise in the Portuguese case. Portugal is a small country with a not very large
number of banks and in which even the smaller banks are large enough not to be
discriminated in the access to markets for non-deposits external funds³².

³¹ We note that the coefficient of ln(K / P) in column (3) is wrong signed, but the above conclusion still
holds for the model in column (4), which was estimated after dropping ln(K / P)_it and ln(K / P)_it z_it and
after checking that the coefficients on l_t z_it and s_t z_it were still statistically not different from zero. However
in column (4) the estimated coefficient of ln(D / P)_it z_it is much smaller and the t-statistic is not very high in
relative terms.

³² We recall that according to Table 2 small banks were net debtors in the domestic money market while
large banks were net creditors.

30

<<   <   27   28   29   30   31   32   33   >   >>