Monetary policy at work: Security and credit application registers evidence

Jose-Luis Peydro, Andrea Polo and Enrico Sette

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities to e.g. risk-shift or hoard liquidity. We identify the bank lending and risk-taking channels by exploiting - Italian's unique - credit and security registers. In crisis times, with higher ECB liquidity, less capitalized banks react by increasing securities over credit supply, inducing worse firm-level real effects. However, they buy securities with lower yields and haircuts, thus reaching-for-safety and liquidity. Differently, in pre-crisis time, securities do not crowd-out credit supply. The substitution from lending to securities in crisis times helps less capitalized banks to repair their balance-sheets and then restart credit supply with a one year-lag.

Keywords: monetary policy; securities; loan applications; bank capital; reach-for-yield; held to maturity; available for sale; trading book; haircuts; regulatory arbitrage; sovereign debt. (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 G01 G21 (search for similar items in EconPapers)
Date: 2017-04, Revised 2018-04
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Monetary policy at work: Security and credit application registers evidence (2021)
Working Paper: Monetary Policy at Work: Security and Credit Application Registers Evidence (2020)
Working Paper: Monetary policy at work: Security and credit application registers evidence (2017)
Working Paper: Monetary Policy at Work: Security and Credit Application Registers Evidence (2017)
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