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Bank loans during the 2008 quantitative easing

Hsuan-Chi Chen, Robin K. Chou, Chih-Yung Lin and Chien-Lin Lu

Journal of Financial Stability, 2022, vol. 59, issue C

Abstract: We examine the effect of quantitative easing on the supply of bank loans. During the Fed’s quantitative easing programs, lending banks reduced relatively more loan spreads, offered longer loan maturities, provided larger loans, and loosened more covenants for firms whose long-term bond ratings were below BBB and were lower than those with investment-grade bond ratings. Furthermore, we find that new bank loans in this period were associated with a reduction in a firm’s value and an increase in default risk. These results indicate that banks took greater risk during the 2008 quantitative easing by relaxing lending standards to relatively riskier borrowers.

Keywords: Bank loans; Default risk; Firm value; Quantitative easing (search for similar items in EconPapers)
JEL-codes: E58 G12 G21 G32 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jfs.2022.100974

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Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

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