Introduction

This chapter examines the implications of differential bank characteristics for the loan supply behaviour of Greek banks, using monthly panel data that cover the second half of the 1990s, and assesses the importance of these cross-sectional differences for the operation of the bank-lending channel. Implicit in this approach, namely that the response of banks to changes in monetary policy could differ depending on their characteristics (such as size or liquidity), is the assumption that, when asymmetries are present, loan-supply shifts – a necessary condition for the operation of the lending channel – may be identified. The empirical results derived from bank-level data indicate that bank-specific characteristics were found to systematically shift the loan-supply function. This result is consistent with previous time-series evidence (Brissimis and Kastrissianakis, 1997) according to which the bank-lending channel operates in Greece although its importance diminished in the 1990s with the financial liberalisation.

The remainder of the chapter is divided as follows. Section 2 presents an overview of recent developments in the Greek banking system and its characteristics that may be pertinent to the operation of the lending channel. Section 3 uses two approaches for analysing the role of banks in monetary transmission. One employs a reduced form equation linking monetary policy and distributional variables to bank loans in the spirit of Kashyap and Stein's (1995) work.