Introduction

Following the microeconometric analysis of firms' investment using firm-level data in part 2 of this volume, part 3 focuses on the microeconometric investigation of the role of banks in monetary transmission in the euro area. While theory offers a wide array of different transmission channels, those that attribute an important role to banks are of special interest here, mainly for two reasons.

First, most European countries rely much more heavily on bank finance than, for example, the USA (see table 14.1). Comparing the ratio of bank total assets to GDP across the four largest countries of the euro area and the USA it turns out that banks are much less important in the USA than in any of the European countries. Accordingly, the financial structure of the corporate sector in Europe relies much more heavily on bank loans, with the mirror image of this being the larger stock market capitalisation and the more prominent role of debt securities issued by the corporate sector in the USA.

Second, beyond the high overall level of bank dependence there are also some notable differences at the country level. We document the differences in a comprehensive fashion in table 14.2, and in what follows concentrate on the gaps that may have implications for the transmission of monetary policy.