Bank-lending Channel, Monetary Policy, and Bank-level Heterogeneity: Contrasting Evidence from the Euro Area and Scandinavia

Abstract

This paper investigates how bank-specific attributes influence the bank-lending channel across monetary policy cycles for commercial banks from the euro area and three Scandinavian countries (Denmark, Norway, Sweden) over the period 2004–2020, covering more than 3,200 institutions. Using fixed effects panel regressions on unconsolidated BankScope/Orbis data, we quantify the differential impact of changes in the monetary policy stance (including policy-rate increases) conditional on bank size, capitalisation, profitability and loan-loss provisioning. The results show that larger banks curb lending significantly less than their smaller peers, especially in Sweden and Norway; well-capitalised banks also cushion the contraction, whereas high provisioning amplifies it. The findings highlight the importance of tailoring macroprudential buffers to institutional structures and caution against a one-size-fits-all approach within the European Single Market. By contrasting regulatory and monetary regimes, the study contributes to the comparative literature on monetary transmission and offers comparative, ex-ante insights for authorities still navigating the post-pandemic tightening cycle.