QE: Implications for Bank Risk-Taking, Profitability, and Systemic Risk

Supriya Kapoor () and Adnan Velic
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Supriya Kapoor: Technological University Dublin

Economic Papers from Trinity College Dublin, Economics Department

Abstract: In the aftermath of the sub-prime mortgage bubble, the Federal Reserve implemented large scale asset purchase (LSAP) programmes that aimed to increase bank liquidity and lending. The excess liquidity created by quantitative easing (QE) in turn may have stimulated bank risk-taking in search of higher profits. Using comprehensive data on balance sheets, risk measures, and daily market returns in the U.S., we investigate the link between QE, bank risk-taking, profitability, and systemic risk. We find that, particularly during the third round of QE, banks that were more exposed to the unconventional monetary policy increased their risk-taking behavior and profitability. However, these banks also reduced their contribution to systemic risk indicating that the implementation of QE had an overall stabilizing effect on the banking sector. These results highlight the different distributional effects of QE.

Keywords: large-scale asset purchases; quantitative easing; bank risk-taking; systemic risk; expected shortfall (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fmk, nep-mac, nep-mon and nep-rmg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep0122

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