Unconventional Monetary Policy Transmission and Bank Lending Relationships

Firms with only one bank relationship make up the majority of firms in many economies. This paper explores whether policy-driven lending is differentially transmitted to single-bank firms in comparison to the multi-bank firms that are the focus of the literature. Using unique variation in the ECB's Very Long-Term Refinancing Operations (VLTROs), which affected lending to firms discontinuously across credit ratings but within banks, we find selective transmission of VLTRO liquidity to single-bank firms. Banks apply higher lending standards to single-bank firms, with banking relationships determining both new lending and lending maturity. By contrast, banks appear to transmit policy lending near-uniformly across multi-bank firms.