Differential deposit guarantees and the effect of monetary policy on bank lending

This paper utilizes differences in de jure deposit insurance coverage across banks and changes in coverage over time to identify a bank-lending channel in Poland. Banks with partial guarantees have a stronger loan response to monetary policy than banks with full guarantees. Furthermore, the weak response of the fully guaranteed banks is attributed to their ability to raise low-reserve, uninsured time deposits relative to the partially covered banks. When differential coverage is eliminated, there is no disparity in the loan response between the two groups. This lending channel has implications for credit control and financial system development in emerging markets. (JEL E52, G21, G28)
I. INTRODUCTION The bank-lending channel (BLC) emphasizes the role of bank loans in the transmission of monetary policy. According to the BLC, contractionary monetary policy can decrease the loan supply [...]