Estimates by ECB staff suggest that banks with lower excess liquidity are more likely to reduce their supply of credit in response to policy rate hikes, and the increase in their lending rates is likely to be larger (Chart 17).
Chart 17 Response of loan supply and lending rates to a policy rate hike by level of excess liquidity (percentage points of supply-driven loan growth (panel a) and change in lending rates (panel b) over three months for each percentage point increase in the deposit facility rate; size of bubbles equal to volumes of loans to firms)  Sources: Panel a): ECB (AnaCredit, iBSI, MOPDB) and ECB calculations; panel b): ECB (AnaCredit, iBSI, iMIR, MOPDB) and ECB calculations.