Reserves regulation and the risk-taking channel

Manthos Delis, Sotirios Kokas and Alexandros Kontonikas

Journal of Corporate Finance, 2024, vol. 89, issue C

Abstract: We examine how a policy change by the FDIC, which unexpectedly exempted some banks, affects corporate lending via changes in reserves during the Quantitative Easing (QE) era. To address the endogeneity of reserves, we use a unique hand-collected dataset on the bank’s share of exemption from the policy shift, and differentiate between loan demand and loan supply. We find important differences in loan-level outcomes, attributed to the heterogeneous impact of the new regulation on the net return on holding reserves. The effectiveness of the risk-taking channel is significantly weaker for banks with larger exemption shares and this has real effects in terms of borrowers’ leverage, growth, and return on assets.

Keywords: FDIC regulation; Bank lending; Quantitative easing; Syndicated loans (search for similar items in EconPapers)
JEL-codes: E52 G21 G28 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:89:y:2024:i:c:s0929119924001512

DOI: 10.1016/j.jcorpfin.2024.102689

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