Research and Policy

Deposit Funding and the Credit Channel of Monetary Policy

With Matthieu Bussière, Guillaume Horny and Benoît Nguyen

Banque de France Working Paper Series no. 1029, 2025 · BdF WP · PDF

Deposit funding Monetary policy Credit channel

Abstract: How does heterogeneity in deposit funding among banks influence the transmission of monetary policy to loan supply? We exploit a bank-level panel dataset covering euro-area banks from 2007 to 2023. The evidence shows that banks relying more on deposits increase lending rates less after monetary policy tightening, consistent with a mechanism in which deposit funding shapes bank loan supply.

Imperfect Banking Competition and the Propagation of Uncertainty Shocks

R&R @ JME · Banque de France Working Paper, 2025 · BdF WP

Banking competition Uncertainty shocks Business cycles

Awards: IFABS Best PhD Paper Award (Link most updated version)
Abstract: Uncertainty shocks, by propagating through the banking sector, play a crucial role in driving business cycle fluctuations. To examine how the recent decline in U.S. banking competition has affected the transmission of these shocks, I develop a dynamic stochastic general equilibrium model featuring heterogeneous banks, imperfect banking competition and financial frictions. The model shows that reduced competition in the banking sector leads to higher borrowing rates and increased risk-taking by borrowers. As a result, uncertainty shocks generate more pronounced increases in defaults and sharper contractions in investment and output in less competitive banking environments. Quantitatively, the model implies that the recent decline in U.S. banking competition results in a 0.1 percentage points larger drop in GDP one year after an uncertainty shock. This finding is supported by panel local projection evidence indicating that lower banking competition amplifies the negative impact of uncertainty on GDP.

Risky Firms and Fragile Banks: Implications for Macroprudential Policy

With Vivien Lewis, Stéphane Moyen and Stefania Villa

Journal of International Money and Finance, Volume 160, 2026 · JIMF · BdF WP · Bank of Italy WP · BuBa WP · CEPR WP

Firm risk Macroprudential policy Bank fragility

Abstract: Increases in firm default risk raise the default probability of banks while decreasing output and inflation in US data. To rationalize the empirical evidence, we analyse firm risk shocks in a New Keynesian model where entrepreneurs and banks engage in a loan contract and both are subject to default risk. In the model, a wave of corporate defaults leads to losses on banks’ balance sheets; banks respond by selling assets and reducing credit provision. A highly leveraged banking sector exacerbates the contractionary effects of firm defaults. We show that high minimum capital requirements jointly implemented with a countercyclical capital buffer are effective in dampening the adverse consequences of firm risk shocks.

Capital Requirements, Bank Competition and Stability

Measuring financial conditions impulse for the euro area

With Aymeric Ortmans and Arthur Saint-Guilhem · Eco Notepad no. 417 · 12 November 2025 · Link

We present a new financial impulse index for the euro area that aggregates changes in key financial variables based on their expected impact on real GDP growth.

Rapport sur la stabilité financière, Juin 2025 (Link)

With BdF colleagues · June 2025

Évaluation des risques du système financier français, Décembre 2023 (Link)

With BdF colleagues · December 2023