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To whom do banks channel central bank funds?

Peter Bednarek, Valeriya Dinger, Daniel Marcel te Kaat and Natalja von Westernhagen

Journal of Banking & Finance, 2021, vol. 128, issue C

Abstract: This paper examines the relationship between central bank funding and credit risk-taking. Employing bank-firm-level data from the German credit registry during 2009:Q1-2014:Q4, we find that banks borrowing from the central bank rebalance their portfolios towards ex-ante riskier firms. We further establish that this effect is driven by the ECB’s maturity extensions and that the risk-taking sensitivity of banks borrowing from the ECB is independent of idiosyncratic bank characteristics. Finally, we show that these shifts in bank lending are associated with an increase in firm-level investment and employment, but also with a deterioration of bank balance sheet quality in the following year.

Keywords: Monetary policy; LTRO; Bank lending; Credit risk-taking; Real effects; TFP growth (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 O40 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jbankfin.2021.106082

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