The effects of Emergency Liquidity Assistance (ELA) on Bank Lending during the Euro Area Crisis

We examine the impact of emergency liquidity assistance (ELA) on bank lending in eleven euro area countries during the financial crisis. With the intensification of the crisis, ELA took on a pivotal role in some countries. However, assessments of the quantitative impact of ELA in the literature are non-existent. We estimate a structural panel model for the determination of bank lending, which includes the amount of ELA received by each bank, allowing us to investigate the direct effect of ELA on lending. Our model corrects a mis-specification found in the prototype model used in the literature. We then undertake a VAR analysis, which allows us to address the effect of ELA on GDP. Finally, we examine spillover effects among banks, indicating that ELA generated positive spillovers to other banks.