given that the lending rates are volume - weighted and that about three quarters of outstanding corporate loan amounts granted to companies in the euro area are actually granted to non - domestic enterprises. the available information does suggest, however, that corporate lending rates have come down sharply, while banks have at the same time reported tighter credit standards. how can this information be reconciled? were the stricter lending standards implemented through non - price factors, such as loan covenants or collateral requirements? once again, the answer comes from the bls. the survey does not point to a substantial tightening of nonprice lending conditions, but rather to higher margins. most notably, banks have signalled higher margins on riskier loans. this scores well with the rise in risk perceptions already noted earlier in the context of explanatory factors underlying the tightening of lending standards. moreover, it is consistent with non - survey data : margins, as given by the difference between lending rates and three - month euribor rates, have risen since late2008. i have talked extensively about the supply of loans. this is because central banks collect a lot of information from the banking sector, either through statistical reporting requirements or in the framework of voluntary surveys banks participate in. information on the demand side is sparse, which is why i have only mentioned it cursorily, in the context of the bls and the ad hoc survey we carried out. the bls does encompass further demand - side questions which are worth looking at in more detail though. further to this, the next chart plots the key explanatory factors underlying the evolution of loan demand. you will remember that loan demand began to slow down in 2008. the chart shows that there are various elements pulling loan demand in opposite directions. as shown by the orange and red bars, financing needs pertaining to fixed investment and, most notably, to mergers and acquisitions and corporate restructuring, have exerted strong downward pressure on loan demand. at the same time, financing needs pertaining to inventories and debt restructuring have pulled loan demand in the opposite direction, as shown by the yellow and green bars. because there are countervailing factors, the evolution of loan demand is somewhat volatile ; however, there is no questioning the fact that generally loan demand has come down since the onset of the financial crisis, in spite of some quarter - on - quarter fluctuations. conclusion to conclude, let me emphasise that the slowdown in corporate loan dynamics is at this stage not fully demystified. what

yves mersch : credit developments in luxembourg speech by mr yves mersch, governor of the central bank of luxembourg, at the gala cfo world 2009, luxembourg, 25 november 2009. * * * introduction ladies and gentlemen, it is a great pleasure for me to be here today and i very much appreciate the opportunity to talk about credit developments in luxembourg. in times like these the issue could not be more pertinent. bank lending constitutes one of the most important sources of external financing. to many small - or medium - sized enterprises ( smes ) in particular, bank loans are the only means of external financing available ; rather than raising funds directly, for instance through the issuance of bonds or shares, they have to go through a bank to obtain the necessary funds to finance their activities. the importance of credit intermediation cannot be overstated, and a healthy and well - functioning financial sector is therefore part and parcel of a healthy and well - functioning economy. it goes without saying that a central bank, or a system of central banks, has a keen interest in credit developments. indeed, credit growth is tightly interlinked with economic activity and inflation developments. before i talk about actual credit developments in luxembourg, let me say a few words about the main monetary policy transmission channels involving banks. monetary policy transmission channels involving banks while most monetary policy transmission channels go through the banking sector, either through the price of credit or through credit volumes, central banks can affect the supply of loans as well as the demand side. take the traditional interest rate channel. cuts in the policy rate affect the investment and consumption decisions of businesses and households only to the extent that they are actually passed on through the banking sector. banks determine the extent of the passthrough and their lending rates in turn impinge on the demand for loans from firms and households. note that it is the real rather than the nominal interest rate which matters in this decision - making process. the underlying assumption is that some prices and wages are inflexible ( or “ sticky ” ) in the short run. this implies that the aggregate price level adjusts slowly over time, entailing that falls in the nominal interest rate also lead to falls in the real interest rate. this is an important distinction, as it provides a mechanism that enables monetary policy to stimulate the economy even if nominal interest rates hit their zero lower bound. indeed, an expansion in the money supply can raise expected inflation, thus lowering the real interest rate and providing further