Quantitative Easing and Bank Risk Taking: Evidence from Lending

John Kandrac · Bernd Schlusche

72 citations0/0 files storedJournal of money credit and banking

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Banking stability, regulation, efficiency Monetary Policy and Economic Impact Economic theories and models

Abstract

Abstract We empirically test early monetary theories in which reserve creation plays a crucial role in the transmission of quantitative easing (QE). Analyzing the unprecedented injection of reserves across several Federal Reserve QE programs, we demonstrate a causal effect of bank‐level reserve accumulation on lending and risk‐taking activity. To overcome the endogeneity of bank‐level reserve increases to banks' other portfolio decisions, we employ instruments made available by a regulatory change that strongly influenced the distribution of reserves in the banking system. Consistent with the theory, we document that reserve creation leads to higher total loan growth and increased risk taking.

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References

1969A General Equilibrium Approach To Monetary Theory 1995Inside the Black Box: The Credit Channel of Monetary Policy Transmission 2009Bank lending during the financial crisis of 2008 2000What Do a Million Observations on Banks Say About the Transmission of Monetary Policy?2011Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?1998It's Baaack: Japan's Slump and the Return of the Liquidity Trap 2014Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk-Taking?2011The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy

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