THE EFFECT OF FINANCIAL FRAGMENTATION ON THE BANK LENDING CHANNEL: THE CASE OF THE EURO AREA

Bank lending channel which connects the financial and real sectors is one of the major monetary transmission mechanisms. Financial fragmentation which initially emerged during the financial crisis of Euro area where financial system is built on banks has prevented the recovery of the real economy by adversely affecting the functioning of the bank lending channel. In this study, we aim to explain how financial fragmentation deteriorated the functioning of the bank lending channel in the Euro area and to analyze unconventional monetary policy measures taken to sort out the problem.