[Please select] [Please select] The role of non-performing loans in the transmission of monetary policy by Sebastian Bredl Discussion by Angela Maddaloni (ECB) Fifth Research Workshop of the MPC Task Force on Banking Analysis for Monetary Policy Brussel, 1 February 2018 Any views expressed are only the speaker’s own and should not necessarily be regarded as views of the ECB or the Eurosystem.

[Please select] [Please select] What the paper does Investigates the role of non-performing loans in affecting lending rates for newly granted loans in the euro area In particular, it analyses if this effect works through the increase in the funding cost of the bank Enter presentation title by changing the footer.

[Please select] [Please select] Results Results suggest that there is no relationship with the (gross) stock of NPL A higher stock of net NPL is associated with higher lending rates, but this may be offset by the impact of loan loss reserves Relationship between funding costs and lending rates is weak and therefore not likely to be the main channel of transmission Enter presentation title by changing the footer.

Overall assessment The paper is well written and a lot of work has been done in terms of different specifications, subsample analysis and robustness It would be beneficial to focus on few specifications and dig deeper on the factors affecting the results To increase the added value of the paper, it would be good to leverage on the specificities of the data used

Streamlining the specifications There are two main groups of specifications FE and GMM with and without macroeconomic controls Results suggests that the specifications with macroeconomic controls is more precise. This seems to reflect the fact of course the NPL are endogenous to economic conditions and affect country risk. Maybe keep only this specification?

The role of aggregation at banking group Model (1) and (3) are estimated at the individual MFI level, while model (2) is estimated at the banking group level. This is confusing, it makes it difficult to make comparisons and interpret the evidence What is the rational to perform the analysis at the individual level? How would the effect of NPLs on the balance sheet change for individual subsidiaries or for banking group

The role of bank funding Bank funding cost depends on the composition of the liabilities YTM takes into account only one part of the funding costs. Deposits and wholesale (interbank + short-term) are not considered Maybe NPL are more related to the rates paid on the wholesale market (need some proxy for that) but also the fraction of liabilities that it is financed by shorter-term liabilities AFC seems the correct measure to use

Minor observations Why restricting the analysis only to NFC loans? Not clear how the pass-through of monetary policy is measured. Is the OIS-swap rate also included in the model (not only in the interaction)? Link between rate fixation and NPL?

Some interesting extensions [Please select] [Please select] Some interesting extensions Analysis based on credit register data can identify credit supply shocks related to NPL much better. What are the advantages of using IBSI-IMIR data? Cross-country dimension Macroeconomic impact of NPL Possible extensions: Impact of NPL on transmission of monetary policy, but considering cross-country differences for the monetary policy stance Impact of national supervision as opposed to centralised supervision? (Popov et al. (2017) show that banks in the SSM have lower funding costs) Importance of the NPL distribution? Enter presentation title by changing the footer.